U.S. Treasury yields could trade in the 4.75-5.00% range for much of 2025, according to Mohamed El-Erian, Chief Economic Advisor at Allianz, as markets digest the Federal Reserve’s revised rate outlook and end-of-year dynamics.
What Happened: The benchmark 10-year Treasury yield touched 4.613% on Tuesday, its highest level since May 30, before settling at 4.594% in a holiday-shortened trading session.
The recent yield movement follows the Federal Reserve’s December meeting, where officials reduced their projected interest rate cuts for 2025 from four to two.
“The yield on the 10-year U.S. government bond is flirting again with the 4.60% level,” El-Erian wrote on X, formerly Twitter, suggesting sustained pressure on government debt prices could persist well into next year.
Rising Treasury yields typically signal heightened concerns for stock investors as they can draw money away from equities into lower-risk fixed-income securities, compress stock valuations, and discourage consumer and business borrowing – all of which can impact economic growth and corporate profits.
This impact was evident in October when stocks tumbled as the 10-year yield breached 4% for the first time since August.
See Also: Cathie Wood’s Pre-Christmas Sale: Ark Invest Dumps Even More Tesla, Palantir Stock
Why It Matters: The yield outlook comes amid broader market optimism, with major U.S. stock indices advancing in what traders call the “Santa Claus rally” period. The S&P 500, as tracked by SPDR S&P 500 SPY gained 1% on Tuesday, marking its third consecutive session of gains, while the tech-heavy Nasdaq 100 tracked by Invesco QQQ Trust, Series 1 QQQ rose 1.3%.
Tesla Inc. TSLA led the market surge with a 7.35% jump, its strongest single-day performance since November. Other notable gainers included Walmart Inc. WMT and Netflix Inc. NFLX, rising 2.4% and 2.5% respectively.
Historical data suggests the year-end rally could continue, with the S&P 500 having posted gains in 64 of the past 96 years during the Dec. 24-31 period, averaging a 0.85% return. The strongest Santa rally occurred in 2018 when the index surged 6.6%.
Financial markets will remain closed on Wednesday for the Christmas holiday, with trading set to resume on Thursday.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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