UST yields plunged post-easing inflation and dovish FOMC policy pivot in the last two months of 2023.
As much as 2022 was a tough year driven by high inflation, after-effects of the pandemic, and a burst in rate hikes, 2023 was even more so as known unknowns became unknown unknowns. Markets expected a slowdown in rate hikes and possibly a peak in interest rates sometime in 2023. In hindsight, this happened in a relative sense with the US Federal Funds rates peaking at 5.25%–5.50% in late July 2023 and remaining on pause since then.
However, it was not a smooth sailing pause as the US economy continued to signal signs of strength at certain periods instead of the expected economic cooldown, and global markets through 2023 dealt with the arduous and painstaking process of trying to curb the rise in prices due to sticky inflation. Solid economic data and resilient earnings in 3Q2023 resulted in 2Y (high of 5.2% in October 2023) and 10Y (5.0%) UST yields reaching 16- and 17-year highs respectively per Bloomberg.
