Most Treasury yields moved lower Friday morning — though the 10-year Treasury yield still held steady around 2% — following a sharp selloff from the prior session that was triggered by a hotter-than-expected January inflation reading.
What are yields doing?
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The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.022%
was at 2.001%, compared with 2.028% at 3 p.m. Eastern Thursday. The 10-year yield jumped more than 10 basis points Thursday — its largest one-day gain since July 31, 2019, based on 3 p.m. according to Dow Jones Market Data. -
The 2-year Treasury note yield
TMUBMUSD02Y,
1.557%
was at 1.537%, down from 1.56% Thursday, when it jumped 21.4 basis points for its biggest daily gain since June 5, 2009. -
The 30-year Treasury bond
TMUBMUSD30Y,
2.320%
was at 2.303%, marginally lower from 2.308% late Thursday. - The yield curve, a line tracking rates across Treasury maturities, continued to flatten Friday after the spread between 10-year and 2-year Treasury notes shrunk to around 46 basis points.
What’s driving the market?
The Treasury selloff that pushed up yields Thursday came after the January consumer-price index showed the annual headline rate rising to a higher-than-expected 7.5%, its hottest reading since February 1982. Adding fuel to the fire, St. Louis Federal Reserve Bank President James Bullard, a voting member this year of the central bank’s rate-setting Federal Open Market Committee, told Bloomberg News that he would like to see the Fed raise rates by 100 basis points, or 1 percentage point, over its next three meetings.
Fed-funds futures traders moved to more aggressively price in a half-point March move, and some Fed watchers now suggest that an intermeeting rate hike wouldn’t surprise them.
Read: A ‘firestorm’ of hawkish Fed speculation erupts following strong U.S. inflation reading
Other Fed speakers played down the prospect of a half-point hike. Richmond Fed President Tom Barkin said on Thursday that he was open to the concept, but questioned whether there was a “screaming need” to do it. “I’d have to be convinced on that,” he said at an event, according to Reuters. San Francisco Fed President Mary Daly was quoted as telling Market News International that a half-point move wasn’t her preference.
Barkin and Daly aren’t 2022 voting members of the FOMC, but all regional Fed presidents participate in policy discussions.
Inflation data is expected to remain the main driver of financial markets. Among data releases on Friday, the University of Michigan’s consumer sentiment reading fell to 61.7 in February from 67.2 the prior month, and five-year inflation expectations held steady at 3.1%.
What are analysts saying?
“The yield curve has continued to relentlessly grind flatter overnight,” said strategists Ian Lyngen and Ben Jeffery at BMO Capital Markets, in a note.
“Daly and Barkin attempted to offset the sentiment toward a dramatic start to the hiking campaign by noting there isn’t a convincing argument for 50 bp (basis points),” they wrote. “Suffice it to say, Bullard’s hawkishness met a far more receptive audience in the Treasury market as evidenced by the ongoing weakness in the 2-year sector and the fact the January 2023 fed funds futures contract is trading at an implied rate of 1.785% this morning.”
