US yields push higher after latest jobless claims

The 10-year Treasury yield rose 1.9 bps to 4.147% and the two-year yield rose 1.7 bps to 3.471% after initial jobless claims for the week to Dec. 27 came in at 199,000 versus a 220,000 Reuters forecast. Yields are markedly lower year-over-year (10-year down ~42.6 bps, 2-year down ~76.9 bps) as the Fed has gradually cut rates through 2025; the 2s10s spread stands at 67.4 bps and the U.S. dollar five‑year forward inflation‑linked swap is 2.444%. Market odds of a Fed rate cut in January are ~14.9%, and eligible firms borrowed a record $74.6 billion from the NY Fed’s Standing Repo Facility, collateralized with $31.5 billion of Treasuries and $43.1 billion of MBS.

Analysis

Market structure: The step-down in both 2y and 10y yields (10y at 4.147%, 2y at 3.471%) favors long-duration assets, growth equities and AUM-dependent financials while pressuring bank NIMs and short-term funding businesses. The modest yield uptick after a lower-than-expected jobless claims print shows sensitivity to labor data; market-implied odds for a January Fed cut remain low (~15%), so moves will be data-driven and volatile in the next 30–90 days.

Competitive dynamics & supply/demand: Record $74.6bn repo take-up and heavy MBS collateral posting ($43.1bn) signal dealer balance-sheet/liquidity stress and persistent demand for high-quality collateral; this supports MBS and UST bid but increases the chance of dislocations if Treasury issuance rises. Lower forward inflation (5y fwd ~2.44%) reduces inflation risk premia, compressing spreads for duration-sensitive sectors and increasing pressure on bank deposit spreads.

Cross-asset & risk assessment: Expect stronger equity risk premia and FX pressure on the USD if the Fed moves toward cuts H1 2026; commodities like gold should benefit at yields below 4% real. Tail risks: sticky inflation, surprise Treasury issuance, or repo/liquidity shock could re-steepen yields quickly — set triggers at 10y>4.8% or CPI MoM>0.4%.

Trade catalysts & timing: Key catalysts are Jan payrolls, next CPI prints, FOMC minutes and Treasury refunding calendar. Near-term (days–weeks) trade around data prints; medium-term (3–6 months) position for at least one Fed cut expectation; hedge liquidity/tail via options and staggered entries.

Key Decisions for Investors

• Establish a 2–3% strategic long in long-duration USTs (via TLT or 10yr futures) with buy-on-strength orders when 10y > 4.25% and target exit/yield take-profit at 10y = 3.75% within 3–6 months; hard stop if 10y > 4.80% (2025 high).
• Reduce direct bank exposure (e.g., HDB) by 30–50% over the next 4–8 weeks; hedge remaining exposure by buying 3-month puts ~10% OTM or entering payer swaps to protect NIM compression if Fed cuts materialize.
• Initiate a 2–3% long position in LPLA (wealth manager) as a relative beneficiary of higher AUM/risk-on flows — target +15–25% in 6–12 months; protect with 6-month 10% OTM puts costing ≤2% of position.
• Accumulate INFY and WIT (total 4–6% portfolio) in equal weight on pullbacks because lower global rates and stable growth support IT discretionary spend; hedge 20% of currency exposure to INR moves and set stop-loss at 15% downside, horizon 6–12 months.