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Bond Report: 2- and 10-year Treasury yields post biggest weekly declines since March to end a week of choppy trade

Treasury yields bounced back on Friday, though fell short of finishing the week higher, as traders closed out a choppy week. Read More...

Treasury yields bounced back Friday, but fell short of finishing the week higher,
as traders closed out a choppy week that included the latest U.S. inflation readings.

The 2- and 10-year rates had their biggest one-week drops since March.

What yields are doing
  • The 2-year Treasury yield BX:TMUBMUSD02Y rose 7.7 basis points to 2.597% from 2.52% Thursday afternoon. For the week, it declined 9.9 basis points, the largest weekly drop since March 27, based on 3 p.m. levels, according to Dow Jones Market Data. Yields and debt prices move opposite each other.
  • The yield on the 10-year Treasury note TMUBMUSD10Y, 2.921% rose 11.7 basis points to 2.932% from 2.815% at 3 p.m. Eastern on Thursday. Nonetheless, the rate fell 19.2 basis points for the week, the biggest weekly decline since March 4.
  • The yield on the 30-year Treasury bond TMUBMUSD30Y, 3.089% rose 12.2 basis points to 3.091% from 2.985% late Thursday after factoring in new issue levels. It fell 12.9 basis points, the largest one-week decline since April 1. 
What’s driving the market

Yields moved substantially higher on Friday, led by gains in 5- through 30-year rates. The rise in market rates was accompanied by sharply higher U.S. equities as investors returned to risk-on mode. Though the yield on the 10-year note rose 11.7 basis points Friday, it fell short of the intraday high reached on Monday, when it briefly climbed above 3.2%.

Data released Friday showed U.S. import prices cooled in April, with prices for overseas goods unchanged after increasing 2.9% in March. The University of Michigan consumer sentiment index for May came in at 59.1, below estimates and the lowest level in more than 10 years.

Investors remained sensitive to remarks by Federal Reserve officials. On Friday, Cleveland Fed President Loretta Mester put the possibility of a 75 basis point rate increase back on the table for September, though she said she expects to support 50 basis point rate increases at each of the Fed’s next two meetings.

In an interview aired late Thursday on National Public Radio’s Marketplace program, Federal Reserve Chairman Jerome Powell warned that the central bank’s ability to tighten policy without sending the economy into a steep downturn wasn’t solely up to policy makers.

“So the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control,” Powell said. The Fed chief, who won confirmation for another four-year term from the Senate on Thursday, underlined the Fed’s aim to get inflation under control and acknowledged that policy makers probably should have moved earlier to begin raising rates.

Powell quibbled with the suggestion that last week he had taken the prospect of a 75 basis point rate rise off the table, emphasizing that he had said, “We weren’t actively considering that.”

“But I would just say, we have a series of expectations about the economy. If things come in better than we expect, then we’re prepared to do less. If they come in worse than we expect, then we’re prepared to do more,” he said.

What analysts are saying

“As the dust settles after a volatile week for U.S. rates, equities, and crypto, investors are now faced with the underlying question of whether the repricing was a one-off or the beginning of a broader trend that will define the next several weeks of trading in financial markets,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery. “In Treasuries, the 3.20% yield peak in 10s has become a key level.”

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