The 10-year Treasury yield declined as much as 30 basis points (bps) to start the year, only to rally in the final days of the month, ending January just 7 bps higher at 3.95%. The shape of the curve was relatively unchanged, with a modest steepening between 10- and 30-year maturities.

The FOMC kept rates on hold at 5.25%-5.50% as expected, but shifted to a slightly less dovish tone, pushing the market’s expectations for a cut from March to May. Chair Powell was careful to emphasize the need for more confirmation that inflation has been brought under control. Although the Fed’s balance sheet has shifted into focus, the committee gave no hints as to potential changes to quantitative tightening policy, stating there would be a formal review starting in March.

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