Treasury yields edged higher on Friday as traders wrapped up a brutal 2022 for bond investing and assessed the potential headwinds markets could face in the new year.
The yield on the benchmark 10-year Treasury note rose about 4 basis points to 3.88%. The 2-year Treasury yield rose roughly 6 basis points and was last trading near 4.43%.
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Yields and prices have an inverted relationship. One basis point equals 0.01%.
As the calendar year draws to a close, uncertainty about a looming recession, persistent inflation, and what these factors could mean for Federal Reserve policies have been weighing on investor sentiment.
This includes whether the central bank will slow or pause interest rate hikes. Many investors have been concerned about the impact of the pace of rate increases implemented by the Fed throughout 2022 on the broader U.S. economy.
But after a year where the 10-year Treasury yield soared above 4% after starting near 1.5%, crushing most bond portfolios, investors may be willing to bear small hikes from here in exchange for healthy yields.
"We think fixed income here is pretty attractive, in terms of the safety it provides along with the reasonable return it provides, especially if inflation is falling and the real yields start to look attractive," said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
Throughout the week, many investors have been closely watching the last few economic data points of 2022 for hints about the outlook for next year. On Thursday, initial jobless claims data for the week ending Dec. 24 came in above expectations.
The Chicago Purchasing Managers' Index, came in better than expected on Friday, but still showed economic contraction.