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Treasury yields finished at one-week highs on Friday after the U.S. July producer price index came in hotter than expected, handing the benchmark 10-year rate its fourth consecutive weekly advance.
What happened
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
climbed 7.2 basis points to 4.893% from 4.821% on Thursday. For the week, the 2-year yield was up 10.2 basis points. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
rose 8.5 basis points to 4.166% from 4.081% Thursday afternoon. The 10-year rate rose 10.6 basis points this week, its fourth straight week of advances and the longest such streak since the period that ended on March 3. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
was up 4 basis points at 4.271% after factoring in new-issue levels. For the week, the 30-year rate rose 5.7 basis points. It’s gained 36.5 basis points over the past three weeks, its largest three-week gain since the period that ended on Dec. 30. - Friday’s levels for the 2-, 10- and 30-year rates were all the highest since Aug. 3, based on 3 p.m. figures from Dow Jones Market Data.
What drove markets
Data released on Friday showed that the producer price index rose 0.3% in July, more than the 0.2% advance expected by economists polled by The Wall Street Journal. July’s increase is the largest gain since January and up from a revised flat reading in June.
Meanwhile, the University of Michigan’s gauge of consumer sentiment was essentially unchanged in August from July, and consumers saw substantial improvements in the economy relative to three months ago.
Yields extended Thursday’s advances, which came after a weaker-than-expected auction of 30-year bonds and comments by San Francisco Fed President Mary Daly, who said the central bank has more work to do to get inflation back down.
Read: Treasury auctions end on a downbeat note this week after soft 30-year sale
Friday’s PPI data came just a day after July’s consumer price index showed underlying core inflation easing over the past 12 months to 4.7% from 4.8% previously, in line with expectations.
What analysts are saying
“A slightly hotter-than-expected PPI report sent Treasury yields initially higher as Wall Street started to fret over a potential reacceleration with inflation,” said Edward Moya, senior market analyst for the Americas at OANDA. “It is easy to make the hawkish case for the Fed as we are still expecting rising wages from labor disputes, higher energy prices, and a gradual weakening of the labor market.”
“The other side of that trade, however, strongly argues that [the] writing is on the wall that this economy is going to continue to slowdown and that will do the trick for keeping the disinflation process going,” Moya wrote in a note.
