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U.S. Treasury yields followed their European counterparts higher on Friday on news reports that European Central Bank officials were averse to pushing interest rates further into negative territory.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 1.091% rose 4.1 basis points to 1.096%, while the 2-year note rate TMUBMUSD02Y, 0.121% was flat at 0.121%. The 30-year bond yield TMUBMUSD30Y, 1.863% climbed 4.3 basis points to 1.864%.
What’s driving Treasurys?
A Reuters news report on Friday said ECB officials saw limited benefits from cutting interest rates further. The ECB’s key facility deposit rate sits at negative 0.5%.
Earlier in the week, ECB governing council member Klaas Knot sparked speculation that further rate cuts could be forthcoming to stem the euro’s rally.
The mixed messaging pushed eurozone bond rates higher. The 10-year German government bond yield TMBMKDE-10Y, -0.494% climbed 4.7 basis points to negative 0.501%.
Also weighing on haven assets, Johnson & Johnson JNJ, +0.76% announced its vaccine was 66% effective in preventing moderate to severe cases of COVID-19, but was found less effective against the South African variant of the disease, adding another vaccine to the measures to suppress the pandemic and restore some normality to economic life this year.
In U.S. economic data, personal income rose by 0.6%, while the core personal consumption expenditures inflation gauge rose 0.3%, lifting the yearly measure to 1.5%. Consumer spending fell 0.2%.
What did market participants say?
The ECB “clearly views a cut to its deposit rate as the most appropriate instrument for dealing with this currency strength,” Rabobank analysts said.
“However, it also appears to be pursuing a ‘having its cake and eating it’ strategy in that it has said that it doesn’t have any intention of cutting the deposit rate at the present time but it also doesn’t want the market to rule out the possibility of such a cut in the future,” they said.
