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Treasury yields reversed course and moved higher Friday afternoon, resuming a broad-based government bond selloff from the prior session that was triggered by a hotter-than-expected January inflation reading.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.023%
was at 2.049%, compared with 2.028% at 3 p.m. Eastern Thursday. The 10-year yield jumped more than 10 basis points Thursday — its largest one-day gain since July 31, 2019, based on 3 p.m. according to Dow Jones Market Data. -
The 2-year Treasury note yield
TMUBMUSD02Y,
1.589%
was at 1.586%, up from 1.56% Thursday, when it jumped 21.4 basis points for its biggest daily gain since June 5, 2009. -
The 30-year Treasury bond
TMUBMUSD30Y,
2.331%
was at 2.345%, versus 2.308% late Thursday. - The spread between 10-year and 2-year Treasury notes flattened below 47 basis points.
What’s driving the market?
A broad-based Treasurys selloff resumed Friday afternoon, a day after the January consumer-price index showed the annual headline rate rising to a higher-than-expected 7.5%, its hottest reading since February 1982. Adding fuel to the fire, St. Louis Federal Reserve Bank President James Bullard, a voting member this year of the central bank’s rate-setting Federal Open Market Committee, told Bloomberg News on Thursday that he would like to see the Fed raise rates by 100 basis points, or 1 percentage point, over its next three meetings.
Some Fed watchers now suggest that an intermeeting rate hike wouldn’t surprise them.
Read: A ‘firestorm’ of hawkish Fed speculation erupts following strong U.S. inflation reading
Other Fed speakers played down the prospect of a half-point hike. Richmond Fed President Tom Barkin said on Thursday that he was open to the concept, but questioned whether there was a “screaming need” to do it. “I’d have to be convinced on that,” he said at an event, according to Reuters. San Francisco Fed President Mary Daly was quoted as telling Market News International that a half-point move wasn’t her preference.
Barkin and Daly aren’t 2022 voting members of the FOMC, but all regional Fed presidents participate in policy discussions.
Inflation data is expected to remain the main driver of financial markets. Among data releases on Friday, the University of Michigan’s consumer sentiment reading fell to a decade-low of 61.7 in February from 67.2 the prior month, and five-year inflation expectations held steady at 3.1%.
What are analysts saying?
A combination of factors seemed to be at play in Friday afternoon’s bond selloff, said Chris Low, chief economist at FHN Financial.
One was the release of a partial transcript of Bullard’s interview with Bloomberg News, in which the policy maker was quoted as saying he would “like to see the balance-sheet runoff start in the second quarter.” Another factor was the decision by firms such as Goldman Sachs to revise their forecasts for rate hikes this year, according to Low.
Meanwhile, economists are “blown away by breadth of price pressures” in January’s CPI report, with “no indication this is losing momentum,” Low said via phone.
