Is the Treasury sale over? Capital Economics is rated by Investing.com.

Investing.com – While U.S. Treasury yields are expected to fall for the rest of 2025, the yield curve is likely to continue to steepen, analysts at Capital Economics said.

Benchmark 10-year U.S. government bond yields recently touched multi-month highs as investors fretted over expectations that the Federal Reserve could cut interest rates this year.

In the year After cutting borrowing costs by a full percentage point through 2024, policymakers have signaled that they will take a cautious approach to future deficits, especially given the uncertainty surrounding the policies of the incoming President Donald Trump administration. Economists have warned that Trump’s plans, particularly his threat to impose broad import tariffs on allies and rivals, could put fresh pressure on inflation – and further strengthen the case for the Fed to gradually cut rates further.

But those concerns were somewhat tempered by Wednesday’s December reading of consumer price growth. The data showed that core U.S. consumer prices rose as expected in December, with the main measure rising faster than expected in volatile goods such as food and fuel.

Bets that the Fed will choose to extend two rate cuts by the end of the year remained in play after numbers were published on Wednesday and despite other strong economic indicators during the week.

Treasury yields, which tend to move inversely to prices, declined in response.

“The sell-off in Treasuries reversed midway through this week,” Capital Economics analysts said in a note to clients on Friday.

But he noted that the trend is mainly concentrated at the long end of the yield curve. This led to a “significant” dip in the curve, the analysts said, which “suggests that recent expectations for monetary policy — in principle short-term bonds — haven’t been in the driver’s seat lately.”

This so-called “bear steepening,” where long-term yields rise more than short-term yields, has put the bond market in a “slightly unusual position” compared to previous Fed easing cycles.

He argued that future bond movements could be determined by two key questions: What caused long-term yields to rise so sharply in the first place, and how likely is it to continue again?

One possible explanation could include an increase in Treasury term premia — the amount investors want to bear the risk that interest rates may change over the life of the bond — as investors prepare for potential volatility under the Trump administration, analysts said.

Still, it looks like that’s how Trump’s policies will play out over the next few years, “all signs seem to point to slightly lower yields for us.”

Their prediction is At 4.50% by the end of 2025, 10 basis points below current levels, the decline at the front-end of the curve will be “more pronounced”.