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U.S. Treasury yields pulled back Friday, offering some respite for market participants grappling with the speed of the bond-market selloff this week.
Still, long-dated Treasurys booked their biggest monthly rise since Donald Trump’s presidential election victory in November 2016, when expectations around his pro-spending and tax-cut agenda sparked a surge in bond yields.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 1.423% fell 5.4 basis points to 1.459%, but ended 11.5 basis points up this week, and 36.9 basis points higher for the month of February.
The 2-year note rate TMUBMUSD02Y, 0.121% was down 2.1 basis points to 0.145%, trimming its weekly rise to 3.6 basis points this week, and 3 basis points this month. The 30-year bond yield TMUBMUSD30Y, 2.125% slid 11.6 basis points to 2.187%, paring its weekly climb to 4.7 basis points and its monthly rise to 33.2 basis points. Bond prices move inversely to yields.
See: 3 reasons the rise in bond yields is gaining steam and rattling the stock market
What’s driving Treasurys?
Bonds and equities looked to find a footing after a speedy selloff this week that sent government debt yields across the world higher.
Fears that an inactive Federal Reserve and brewing reflationary forces could combine to hurt long-dated Treasurys saw investors flee from bonds on Thursday, leading to the 10-year benchmark note’s biggest daily drop since November.
At the same time, equities tumbled on Thursday over concerns about potentially higher borrowing costs and yields could sap some of the froth from Wall Street.
Investors attributed some of the strong bond-buying on Friday, which capped the month of February, as driven by traders feeling the selloff in Treasurys had overshot economic fundamentals. Money managers periodically need to balance their bond funds at the end of the month, which also may have contributed to Friday’s more bullish trading in government debt.
Read: So long, there-is-no-alternative trade. What now?
But investors likely will need to keep facing the specter of heightened inflation pressures, with recent economic data offering a reminder of the hoard of savings among households that may be released when the pandemic subsides.
Consumer spending jumped 2.4% last month, while personal incomes rose by a much larger 10% after Washington approved stimulus checks in December. On Friday, House Democrats also were hoping to clear President Joe Biden’s $1.9 trillion economic package, which plans to include a third round direct payments to households, at $1,400 per eligible family member.
Meanwhile, the University of Michigan’s consumer sentiment gauge inched up to 76.8 points in February from 76.2 earlier in the month, remaining well below the precrisis peak.
What are market participants saying?
“Risk assets have wavered lately on concerns long rates may be setting up for an upside surge, while the Fed’s commitment to keeping rates in check has not wavered. Until that dynamic changes, we’re reminded that it rarely pays to fight the Fed in the short term,” said R.J. Gallo, senior portfolio manager at Federated Hermes, in a note.
