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U.S. Treasury yields traded lower on Friday but government debt yields have mostly climbed across maturities this week after both consumer and producer price inflation data for July.
What are yields doing?
- The 10-year Treasury note yields 1.341%, versus 1.366% at 3 p.m. Eastern Time on Thursday. Yields for government debt move opposite to prices.
- The 30-year bond was yielding 1.992%, compared with 2.013% a day ago.
- The 2-year Treasury note rate was at 0.221%, from 0.227% on Thursday.
- For the week, the 10-year Treasury is up 5.3 basis points, the 30-year bond is 5.9 basis points higher, while the 2-year note is up 1.3 basis points, based on last Friday’s levels.
What’s driving the market?
Yields on the long end of the curve have been moving higher this week, suggesting fixed-income investors are getting acclimated to the idea of the Federal Reserve announcing an end to its monthly purchases of $120 billion in Treasurys and mortgage-backed securities later this year or early next year.
Most economists are expecting the Fed to soon announce plans to pull back on its monetary accommodation, introduced to support markets and the economy during the pandemic in the past year, according to a Reuters poll.
The Fed is seen as raising the topic of tapering its asset purchases during the three-day Jackson Hole Economic Symposium, which starts on Aug. 26.
On top of that, the spread between the 2-year Treasury note and the 10-year has steepened and currently stands at 1.12 percentage points vs 1.088 percentage points last Friday.
The shape of the curve is usually used by market participants as a gauge of the economic growth and inflation outlook. A steepening yield curve reflects expectations that the economic growth may gain momentum and lead to higher inflation.
The moves in yields come after the July producer-price index, a measure of the prices businesses receive for their goods and services, published Thursday, rose for the sixth month in a row, countering a report on Wednesday of the July consumer price index that suggested pricing pressures may be moderating.
Looking ahead for Friday, investors are awaiting data on import and export prices, which will be released at 8:30 a.m. Eastern Time, and a preliminary reading of consumer sentiment from the University of Michigan at 10 a.m.
What analysts are saying
“Steady rising talk of tapering should over recent weeks is leadingthe bond market to test the topside range of this range to resettle around 1.50s. Extending duration and credit is likely to prove an increasingly undesirable proposition,” wrote Sebastien Galy, senior macro strategist at Nordea Asset Management.
