For all the excitement around the Federal Reserve’s big pivot, the Treasuries market has had a rough 2024 thus far.

The Bloomberg Treasury Total Return Index has been below its year-end level on all-but-one day since the start of the year. It has declined about 1.4% this year through Monday, reversing some of its 7% rally in the final two months of 2023. Treasuries were higher Tuesday, although the relatively small increases did little to change the bigger picture of continued sub-par performance.

Granted, the loss isn’t that unusual — in 2021, the benchmark never logged a positive year-to-date return during the entire year. But the sluggish performance does show that enthusiasm among bond traders late last year amid cooling inflation was premature. Now, data showing a resilient economy has prompted traders to tap the brakes on the timing and magnitude of Fed rate cuts.

Yields on 10-year notes jumped 28 basis points in the two days through to Monday, the most since June 2022, after stronger-than-expected data and a service-sector survey reinforced the Fed’s message that interest-rate cuts are unlikely to begin before May. In the futures market, there has been heavy liquidation of long positions in five- and 10-year contracts, as pricing of a March rate cut fades fast.

“The structural-pain trade is higher rates,” said Gregory Faranello, Head of US Rates Trading and Strategy for AmeriVet Securities. “We are prepared for lower rates. But the rates continue to move higher, which will probably get people a little bit stirred up, a little bit nervous.”

Just four weeks ago, a March rate cut was considered a near certainty by investors. Now, the chance of a quarter-point cut in March has dwindled to around 10%.

For the year, traders are expecting about 116 basis points of rate cuts, or a little less than five quarter-point reductions. In comparison, the market was pricing in six cuts in mid-January, twice as many as the median forecast by Fed officials at the December policy meeting.

–By: Ye Xie with assistance from James Hirai