10-year Treasury yield posts largest weekly decline in about 10 months

The 10-year Treasury note faced some selling pressure on Friday but that didn’t stop long-dated U.S. government debt from logging its sharpest yield declines in months.

Fixed-income experts attributed some of the retrenchment in yields to hedge fund short covering and concerns about tensions between Russia and the U.S., but a number of strategists are predicting yields will resume their inflation-fueled march higher.

How are Treasurys performing?
  • The 10-year Treasury note
    was yielding 1.571%, up 4 basis points, based on a 3 p.m. Eastern Time close. Rates rose 9.3 basis points on the week to record its sharpest weekly drop since the week ended June 12, 2020, according to Dow Jones Market Data.

  • The 30-year Treasury note
    was at 2.260%, rising 5 basis points on the day. It was the long bonds biggest one-day yield rise in about three weeks but its largest weekly decline since March 26.

  • The 2-year Treasury note was at 0.163%, picking up 0.8 basis point. The note was little-changed on the week, edging up 0.6 basis point.

What’s driving the fixed-income market?

U.S. Treasury yields rose for long-dated bonds on Friday after yields for the benchmark 10-year hit the lowest level in about a month a day ago, a move blamed partly on President Biden’s announcement of retaliatory measures on Thursday against Russia over election interference, the SolarWinds cyberattack.

Buying of bonds pushed yields lower but traders said that investor unwinding of positions, with a number of bets focused on yields rising, helped to exacerbate the slide in bond yields, experts said.

Recent downward moves for yields came even as U.S. economic data has mostly been stronger, pointing to an eventual upsurge in inflation, something which is anathema to bonds because they undercut the instruments fixed value.

In U.S. economic data Friday, U.S. housing starts rose 19.4% monthly in March following February’s sharp decline of 11.3%, the US Census Bureau and the US Department of Housing and Urban Development reported Friday. Meanwhile, building permits increased 2.7% in March, after falling 8.8% in February.  

The consumer-sentiment index rose to 86.5 in April from 84.9 in the prior month, according to a preliminary survey by the University of Michigan. The data points to COVID aid checks, rising coronavirus vaccinations and a rapidly growing economy, which helped to push consumer attitudes to a 13-month high.

Moves in bond markets came also as the S&P 500

and the Dow Jones Industrial Average

finished the week at record closing highs.

What are strategists saying?

“The question for the financial markets, then, is do investors need to start separating the massive first quarter theme into its components? That is what would normally happen as a secondary leg for a major theme, but momentum is still so unwavering in stocks that analysts can wait to answer those questions,” wrote Jim Vogel, strategist at FHN Financial, in a daily note.

“The bond market is more cued to the Fed, though, and officials there want to see
how each component works in real life through the summer. March was fantastic,
but it left behind questions that April and May should be able to answer,” Vogel wrote.

“Overall, a strong read on the housing sector but at this stage in the recovery the gains were old news long before released. Moreover, another strong data point is apparently all that was needed for Treasuries to rally further,” wrote Ian Lyngen and Ben Jeffery, fixed-income analysts at BMO Capital Markets, in a Friday note.

“Treasuries were trading with a modest flattening skew ahead of this morning’s first round of data. Since the print we’ve simply seen the price action extended on the margin,” the BMO analysts wrote.

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