Treasury yields fell in the last week of 2023 as 10yr and 30yr yields fell 2 bps. After a rollercoaster year, the 10yr Treasury ended 2023 in the same place as it ended 2022 at 3.88%. To get to 3.88%, the 10yr Treasury yield experienced a furious rally in November and December, falling 110 bps from the high water point of 4.98% seen on October 19. Similar to Treasury yields, municipal yields ground lower to end 2023. Year-over- year municipal yields declined as 10yr and 30yr municipal yields fell 35 and 16 bps, respectively, from December 2022 to December 2023. Fund flows into municipal bond funds flip flopped between a week of inflows and a week of outflows to end 2023. Overall, municipal funds experienced 40 weeks of outflows in 2023 which challenged the municipal market throughout the year. Market participants are expecting multiple Fed rate cuts in 2024 with the first cut potentially occurring March.

Christmas came early for the bond market as the Fed held the fed funds rate steady at last week’s FOMC meeting and Fed Chair Jerome Powell sounded less hawkish than expected and acknowledged the time had come to start discussing rate cuts in his press conference following the meeting. The Fed is forecasting three rate cuts in 2024, an increase from the one cut projected following the September meeting. As a result of the positive news from the FOMC meeting, Treasury yields fell double digit bps across the curve with 10yr Treasury yields declining 32 bps and 30yr yields moving 31 bps lower. Municipal yields followed Treasuries lower as 10yr and 30yr municipal yields fell 17 and 18 bps, respectively. According to Fed fund futures the odds of a 25 bp Fed rate cut in March stands at 75%, while a full rate cut is priced in by May.