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US rate futures price in just two cuts in 2025

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US 2/10 yield curve steepened: widest gap in five weeks

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US housing starts fall; single family starts rise

By Gertrude Chavez-Dreyfuss

NEW YORK, Dec 18 (Reuters) - U.S. Treasury yields were

mixed on Wednesday, with the long end of the curve moderately

higher, as investors stayed sidelined overall as they awaited

guidance on next year's monetary policy from the Federal Reserve

statement and Chair Jerome Powell's remarks at a press briefing

later in the session.

The Fed is widely expected to cut interest rates by 25 basis

points at the end of the two-day policy meeting on Wednesday.

Investors will also scrutinize Powell's comments for clues on

how much more easing the Fed will undertake next year.

Also in focus would be the Fed's summary of economic

projections and the "dot plot" or rate forecasts over the next

two years, which will be released on Wednesday as well. The

Fed's "dot plot" in September, in which the central bank cut

interest rates by 50 bps, indicated a target rate of 3.4% or

about 100 bps in easing.

Ahead of the Fed, U.S. rate futures have priced in just two

rate cuts of 25 bps each in 2025, according to LSEG

calculations.

"Investors have been positioning for that outcome: a 25

basis-point cut and two cuts more in 2025. It's hard not to

agree with that view," said Jim Barnes, director of fixed income

at Bryn Mawr Trust in Berwyn, Pennsylvania.

"Based on the data that we have seen with the labor market

and inflation, it seems that the market is pricing in something

appropriate for that scenario and I think the Fed will probably

catch up with that too. But at this point, we really can't take

much direction until Powell's press conference," he added.

In late morning trading, the U.S. yield curve steepened on

Wednesday, with the spread between two- and 10-year yields

last at 17.5 bps. It steepened to as much as 18

bps, the widest gap in five weeks. The curve steepened in seven

of the last eight sessions, and typically occurs in an easing

cycle.

The benchmark 10-year yield rose 1.6 bps to 4.4%

, rising in seven of the last eight days.

U.S. 30-year yields also advanced, climbing 2.4 bps to

4.603%.

On the front end of the curve, the two-year yield, which is

sensitive to the interest rate outlook, slipped 1.3 bps to

4.228%.

Treasury yields showed little reaction to data showing U.S.

housing starts fell in November, with the rise in single-family

starts offsetting the decline in multifamily ones. Single-family

housing starts, which account for the bulk of homebuilding,

jumped 6.4% to a seasonally adjusted annual rate of 1.011

million units last month.