As Wall Street traders prepare for the upcoming holiday season, the week’s U.Smarket activity has been disrupted by the Christmas breakWith just under two full trading days remaining before the holidays, there are few signs of relief for U.STreasury bulls, who have been facing persistent pressure in recent weeks.

On Monday, yields across all maturities of U.STreasuries rose once again, with long-term bonds particularly under pressureThe 10-year Treasury yield climbed to a nearly seven-month high, signaling an ongoing trend of steepening in the yield curveThe sharp rise in yields was notably more pronounced for longer-term bonds compared to their shorter-term counterparts, reinforcing a pattern that has emerged in recent weeks.

By the close of trading in New York on Monday, the yield on the 2-year Treasury was up by 3 basis points to 4.351%, the 5-year yield rose by 5.5 basis points to 4.44%, the 10-year yield increased by 6.5 basis points to 4.592%, and the 30-year yield gained 5.8 basis points to 4.78%. 

The difference between the 10-year and 2-year Treasury yields now stands at approximately 25 basis points, a sharp contrast to the near-flat spread earlier this month

This comes after a period in late June, when the yield on 2-year Treasuries briefly surpassed that of the 10-year by 51 basis points, reflecting an extreme inversion of the yield curve—a phenomenon that typically signals concerns about future economic growth.

Andrew Brenner, head of international fixed income at NatAlliance Securities, noted that long-end bonds have been under pressure as investors raise the risk premium they require for holding longer-duration debtHe also pointed to U.Sfiscal conditions as a contributing factor, with increasing debt issuance possibly adding further risk to the longer-dated bonds“Overall, we’re seeing a normalization of the yield curve,” Brenner stated, referring to the gradual return to a more typical upward slope in Treasury yields.

In recent months, the abnormal rise in Treasury yields—especially long-term yields—has attracted growing attention from market participants

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The pressure on long-dated bonds can largely be attributed to two factors: traders believe the Federal Reserve will slow the pace of rate cuts next year, and there are concerns about worsening fiscal conditions in the U.SThese concerns have been amplified by a fiscal backdrop that includes a rising federal debt and potential deficits in the years to come.

Interest rate swaps indicate that traders’ expectations for rate cuts in 2024 have now fallen further below the Federal Reserve’s own projectionsAccording to the Fed’s dot plot, officials expect a reduction of 50 basis points next yearHowever, the latest pricing of interest rate contracts suggests that traders are now betting on a smaller reduction—just 34 basis points by the end of 2025, which is closer to a single rate cut rather than multiple reductions.

This shift in expectations has contributed to continued selling pressure on U.S

Treasuries, even as the U.Sconsumer confidence report for the month of December came in weaker than expectedDespite stronger demand at Monday’s 2-year Treasury auction, overall Treasury market sentiment remains negative.

Jeffrey Roach, chief economist at LPL Financial, and Lawrence Gillum, chief fixed-income strategist, pointed out in a report on Monday that the most surprising aspect of last week’s Federal Reserve decision was the upward revision to its inflation forecast for next yearThe Fed now expects inflation to reach 2.5% by the end of 2025, up from its previous forecast of 2.1% in September.

Chris Ahrens, a strategist at Stifel Nicolaus & Co., commented that although the dot plot suggests the Fed may slow its pace of easing in 2025, the yield curve between the 2-year and 10-year Treasuries has not yet flattenedThis suggests that a shift may be underway, with investors increasingly demanding a higher term premium for holding long-duration Treasuries due to fiscal concerns and overall policy uncertainty.

As for market dynamics this week, the holiday period is likely to weigh heavily on activity

With the Christmas holiday approaching, there will be no speeches from Federal Reserve officials for the remainder of the week, a departure from the usual pattern of intense communication that follows a rate decisionAdditionally, with few major data releases scheduled before the holiday break, the selling pressure on Treasuries is expected to persist.

Monday's trading saw relatively light activity, as many traders have already taken time off ahead of the holidayThe U.Sbond and equity markets will both close early on Tuesday, with U.Sstock trading finishing at 1 p.mEastern time (2 a.mBeijing time on Wednesday) and bond market trading ending one hour laterBoth markets will remain closed on Wednesday and will reopen on ThursdayAt that time, market participants will shift their focus to the release of new U.Seconomic data, including initial jobless claims.

For now, the U.S