Treasury yields were rising on Friday morning, as Federal Reserve policy makers set the stage for tighter financial conditions, including a steady liftoff of benchmark interest rates, which are likely to weigh on demand for government debt.
Looking ahead, investors are watching for a series of economic reports, headlined by retail sales at 8:30 p.m. Eastern Time.
What are yields doing
-
The 10-year Treasury note rate
TMUBMUSD10Y,
1.722%
was at 1.734%, compared with a reopening rate of 1.708%, based on yields at 3 p.m. Eastern Time on Thursday. Yields rise as bond prices fall. -
The 30-year Treasury bond yields
TMUBMUSD30Y,
2.064%
2.078%, up from 2.053% a day ago. -
The 2-year Treasury note
TMUBMUSD02Y,
0.919% ,
however, yields 0.916%, versus 0.897% on Thursday afternoon. - For the week, the 10-year Treasury note was down 3.5 basis points from last Friday’s levels at 3 p.m., while the 30-year was down 3.8 basis points, but the 2-year was up 4.8 basis points, at last check.
What’s driving the market?
Markets have been unsettled by the prospect of tightening financial conditions but moves for yields have been comparatively subdued for the week thus far, though the 2-year has been sold, pushing yields higher.
Still, strategists are expecting that the benchmark 10-year Treasury yield will eventually breach 2%, a psychologically significant level for the debt used to price everything from mortgages to auto loans.
Expectations for higher yields are supported by comments from policy makers, including Federal Reserve Gov. Christopher Waller, who recently suggested that as many as five interest-rate increases are a possibility in 2022 as the central bank aims to beat back rampant inflation. Though Waller said his baseline expectation was for three rate increases on the year, which is more in line with expectations.
His remarks come as measures of inflation this week have shown pricing pressures at their highest levels in decades. Consumer prices rose 0.5% in December to push the increase in the cost of living last year to a nearly 40-year high of 7%.
Meanwhile, Lael Brainard, the White House nominee to serve as the central bank’s No. 2, told a Senate finance panel on Thursday that efforts to reduce inflation were the Fed’s “most important task.”
Investors will be looking ahead to a report on retail sales in December. Another report on imports and exports is due at 8:30 a.m., and a reading of industrial production for December is due at 9:15 a.m., followed by a report on business inventories at 10 a.m. and a preliminary reading on consumer sentiment from the University of Michigan is due at the same time.
What strategists are saying
“A difficult stock market close contributed to the 10-yr’s fast trip below 1.70% yesterday. Three other matters, though, accounted for the speed and size of the yield decline across the entire curve,” wrote Jim Vogel, executive vice president at FHN Financial, in a daily research note.
