Yields for U.S. government debt turned mixed Friday morning after data showed U.S. consumer sentiment slumping to a decade low and the Federal Reserve’s preferred inflation gauge leaping 5.8% in 2021 to a 40-year high.
What are yields doing?
-
The 10-year Treasury note
TMUBMUSD10Y,
1.806%
yields 1.804%, down from 1.807% at 3 p.m. Eastern Time on Thursday. Yields for debt rise as prices fall and vice versa. -
The 2-year Treasury note
TMUBMUSD02Y,
1.180%
yields 1.176%, down from 1.190% a day ago. -
The 30-year Treasury bond rate
TMUBMUSD30Y,
2.111%
is at 2.112%, up from 2.090% on Thursday afternoon.
What’s driving the market?
Treasury yields from two to 10 years out slipped in morning trading, while longer-dated rates moved higher, as economic data capped a volatile week highlighted by a hawkish Federal Reserve.
The University of Michigan’s gauge of consumer sentiment fell to a final January reading of 67.2, down from an initial reading of 68.8 and well below December’s number of 70.6. Friday’s figure represents the lowest level of consumer sentiment since November of 2011, and came as inflation concerns build.
The personal-consumption expenditures index of inflation soared 5.8% in 2021, the fastest pace since 1981. The surge in inflation is being underpinned by persistent shortages of supplies and labor.
A narrower measure that omits volatile food and energy costs, known as the core PCE, rose by 0.5% in December, matching the 0.5% forecast seen by economists polled by The Wall Street Journal. For all of 2021, the increase in the core rate totaled 4.9%, compared to a mild 1.5% gain in the prior year. That’s the highest annual level since 1982.
The Fed views the PCE index — the core rate in particular — as the most accurate measure of U.S. inflation.
Friday’s moves in yields follow Wednesday’s policy update from the rate-setting Federal Open Market Committee, which pointed to the start of a steady increase to interest rates, which could begin as early as mid-March, as the central bank battles pricing pressures.
Investors also have been attuned to the recent flattening of the Treasury yield curve, with the spreads between rates on shorter-term maturities and longer ones reaching levels not seen since 2019-2020 on Thursday. This signals that there may be limits to how far officials can go without triggering fears of an impending recession.
What analysts are saying
“Another very active week that has not left behind meaningful technicals in the bond market, while equity charts demonstrate a long list of concerns,” wrote Jim Vogel, executive vice president at FHN Financial, in a Friday research note. “Traders have to wait at least another week to gauge both economic trends and how sensitive rates will be to usually blockbuster reports. The FOMC meeting not only changed policy perceptions but also removed the urgency of first quarter economic reports,” he wrote.
