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U.S. Treasury yields were heading lower on Friday, but are higher for the week, a day after 10- and 30-year U.S. Treasury yields posted their biggest quarterly rises since March as investors’ concerns about inflation intensified and global central banks begin moving away from easy monetary policy settings.
Fixed-income investors were watching for a trove of U.S. data Friday morning, including those on August personal income and spending, September manufacturing sector activity, and September consumer sentiment.
What yields are doing
-
The 10-year Treasury note yields
TMUBMUSD10Y,
1.494%
1.492%, compared with 1.528% at 3 p.m. Eastern Time on Thursday. -
The 2-year Treasury note
TMUBMUSD02Y,
0.281%
was yielding 0.278%, versus 0.289% a day ago. -
The 30-year Treasury bond rate
TMUBMUSD30Y,
2.056%
was at 2.049%, from 2.092% on Thursday. - For the week, the 10-year note yield is up 3.3 basis points, the 30-year bond yield 6.2 basis points higher and the 2-year note’s rate saw weekly rise of 0.4 basis point.
What’s driving the market?
Yields for government debt were down on the session but have climbed in a week that has been marked by growing concerns that inflation might be more severe and more persistent than had previously been anticipated.
Federal Reserve Chairman Jerome Powell, at a House Financial Services Committee hearing, alongside Treasury Secretary Janet Yellen, said that inflation will abate but acknowledged that the central bank wasn’t clear on when pricing pressures might reverse.
Inflation sits well above the Fed’s 2% annual target, even as the labor market stands “far away, we think, from full employment,” Powell told lawmakers. “That’s the very difficult situation we find ourselves in,” he said on Thursday.
Meanwhile, prices on assets such as natural gas
NG00,
and oil
CL.1,
have been surging, creating energy crises in Europe and Asia. Higher inflation chips away at a bonds fixed value and if the economy continues to overheat, some fear that the Fed may have to ratchet up the pace of interest-rate increases once it concludes the tapering of monthly asset purchases. Those developments could prompt selling in bonds, driving yields higher.
Yields for government debt already have been on the rise after the central bank at the conclusion of its late-September meeting indicated that it could start a reduction of its purchases of $120 billion in Treasurys and mortgage-backed securities before the end of 2021, with the intent of ending them by the middle of next year. New Fed projections showed that half of 18 officials expect to raise interest rates by the end of 2022, up from seven in June.
Meanwhile, fixed-income investors also watching Washington politics, after Speaker Nancy Pelosi late Thursday called off a planned vote in the U.S. House of Representatives on a $1 trillion bipartisan infrastructure bill, as Democratic lawmakers remained unable to agree on their other spending proposals.
In addition to wrestling with big plans for public works and social programs, Democratic-run Washington on Thursday dealt with a deadline to fund the government to avoid a partial shutdown, but deferred action on the federal debt limit.
President Joe Biden on Thursday signed into law a short-term spending bill to keep the U.S. federal government running through Dec. 3, acting with just hours remaining before a partial shutdown was due.
Looking ahead, data on personal income and spending for August and core inflation is due at 8:30 a.m. Eastern Time; a final read from Markit on manufacturing purchasing managers index for September is due at 9:45 a.m., and will be followed by Institute for Supply Management’s manufacturing PMI due out at 10 a.m.
A report on August construction spending also is due at 10 a.m., and a final reading of September consumer sentiment is due at the same time, with economists expecting the reading on average to hold steady at 71.
Among Fed speakers, Philadelphia Fed President Patrick Harker is expecting to talk about the economic outlook in an event hosted by the New Castle Chamber of Commerce at 11 a.m., and Cleveland Fed President Loretta Mester will deliver a speech to a forum hosted by the Shadow Open Market Committee at 1 p.m.
What analysts say
“We expect the new month to brings higher yields due to new issue supply calendar as issuers and investors eye. Tapering to come in November,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, in a Friday note. ” We believe lower yields should be used a selling opportunity as inflation fears grow over the fall and winter months,” he wrote.
