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(Bloomberg) -- The US Treasury market ended 2024 with a small gain as inflation resumed edging lower after the first quarter and the Federal Reserve cut interest rates three times.

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The gain was smaller than the market’s 2023 advance, which followed two straight annual losses for an asset class whose interest payments normally offset price declines caused by rising yields.

Until nearly the end of April, Treasury debt was on track for a loss as yields approached their 2023 highs. Halting progress toward lower inflation forced forecasters to scrap predictions the Fed would cut rates by as much as two percentage points by year-end.

But the market reversed course and yields reached their lowest levels of the year in mid-September as more favorable inflation trends put Fed rate cuts back on the table. The three rate cuts — in September, November and December — totaled one percentage point, bringing the central bank’s target range for the US overnight interest rate to 4.25%-4.5%.

At the low point for yields in mid-September Treasuries had a 4.7% YTD gain. It eroded as the US presidential election in November, along with a pattern of stronger-than-anticipated economic data, curbed the outlook for additional Fed rate cuts in 2025.

Still, the Fed’s policy shifts held down short-maturity yields, causing the 10-year to exceed the 2-year, and the 30-year to exceed the 5-year by more than half a percentage point, both for the first time since 2022.

For 2025, many US interest-rate strategists expect short-term rates to decline by at least 50 basis points, 10-year yields by about 30 basis points.

• The Bloomberg US Treasury Index returned 0.6%; the best months for the index were July (2.2%) and May (1.5%); the worst were October (-2.3%) and April (-2.3%)

• 2024 changes for benchmark yields:

  • 2Y -0.8bp

  • 5Y +53bp

  • 10Y +69bp

  • 30Y +75bp

• Yields ratcheted higher during the early part of the year as rising oil prices helped drive overall inflation higher

  • 10-year yields reached their highest level of the year, near 4.74%, in April, and their lowest level, 3.60%, in September

  • The Fed cut interest rates by a half point on Sept. 18, its first rate cut since 2020, and by a quarter point on Nov. 7 and Dec. 18

• Oil and gasoline prices were a factor, reaching YTD highs in April then declining through mid-September; WTI crude futures began the year at about $70, rose to $87 and ended around $72

• Inflation expectations implied by yields on Treasury inflation-protected securities followed a similar pattern, with the five-year breakeven rate peaking at around 2.6% in April and ending the year around 2.4%

• Actual inflation slowed, with the Consumer Price Index up 2.7% y/y in November; core inflation rose 3.3%

• Expectations for Fed rate changes shifted dramatically at several points during the year

  • During the first quarter, forecasts for at least 100bp of easing by year-end were common

  • By April, following a raft of robust economic indicators, many of the same banks were forecasting just one quarter-point cut

  • By August, predictions of at least 75bp of easing had become common again based on softening labor market and inflation data

• Yields followed a similar pattern in other major sovereign bond markets as key central banks around the world pivoted to rate cuts: the European Central Bank cut in June, the Bank of England in August

• Large daily swings in yield became somewhat less frequent than in the previous two years, and gauges of market volatility broadly declined

• Some of the biggest daily moves occurred on:

  • Feb. 2 (strong January jobs report)

  • Feb. 13 (January CPI)

  • April 10 (March CPI)

  • June 7 (strong May jobs report)

  • Aug. 2 (weak July jobs report)

  • Aug. 6 (stocks rebound from previous day’s slide)

  • Oct. 4 (strong September jobs report)

  • Nov. 6 (US presidential election outcome)

  • Nov. 25 (Treasury secretary designated, oil price drop)

  • Dec. 18 (FOMC revised forecasts anticipating less easing)

• The Treasury Department increased quarterly auction sizes (for all tenors except 20-year) for the last time in February and said no further increases were anticipated for at least the next several quarters

• See also:

  • 2023 summary

  • 2022 summary

  • 2021 summary

  • 2020 summary

  • 2019 summary

  • 2018 summary

  • 2017 summary

  • 2016 summary

  • 2015 summary

  • 2014 summary