NEW YORK — U.S. Treasuries rallied on
Friday as new highs in yields this week met resistance from dip
Financial Post Top Stories
Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.
By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails or any newsletter. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300
buyers following comments from U.S. Federal Reserve officials
that temporarily calmed fears around the direction of inflation
and interest rates.
U.S. government bond yields, which rise when prices fall,
have been on the up this week as strong economic data in the
U.S. and inflation numbers in Europe supported concerns that the
fight against inflation is far from over and that central banks
will need to raise rates more than expected to cool the economy.
Benchmark 10-year Treasury yields as well as 30-year yields
went above 4% for the first time since November, while two-year
bond yields rose to levels not seen since 2007.
On Friday, however, bond bears met some resistance after Fed
officials on Thursday expressed doubts on whether recent
hotter-then-expected data was a “blip” or a sign that higher
interest rates were required to slow price rises.
The market was trying to read through comments of Fed
officials to gauge how the recent narrative of higher-for-longer
rates will impact the U.S. central bank’s economic projections,
which will be released at its next meeting later this month,
said Jake Jolly, senior investment strategist at BNY Mellon.
Yields at 4% have “some psychological resonance as well …
at that level you’re going to see a bit of a bid, so you’re
getting that push and pull from investors coming into the market
being a little more attracted to extending duration,” he said.
Friday’s retrenchment in yields moderated after data showing
that the U.S. services sector grew at a steady clip in February,
with new orders and employment rising to more than one-year
highs, suggesting the economy continued to expand in the first
Yields of benchmark 10-year Treasuries were last
seen at 4.002%, down about seven basis points from Thursday,
while two-year yields, which more closely reflect
monetary policy expectations, were last seen at 4.894%, down one
basis point on the day.
The gap between the two- and 10-year yields,
a harbinger of a looming recession when shorter duration rates
are higher than longer-dated securities, remained deeply
inverted at -89.6 basis points.
Money market expectations that the Fed may go back to a 50
basis points increase of its policy rate at its next meeting
this month gained some traction earlier this week, although the
consensus remained largely around a 25 basis points hike.
Investors will look at data for U.S. unemployment on March
10 and the Consumer Price Index on March 14 to get a sense of
the Fed’s next steps as it seeks to slow inflation to its 2%
target. Fed Chair Jerome Powell’s testimony to Congress next
week could also give some indications on the monetary policy
March 3 Friday 10:19AM New York / 1519 GMT
Price Current Net
Yield % Change
Three-month bills 4.74 4.8615 -0.008
Six-month bills 4.9275 5.1347 -0.007
Two-year note 99-127/256 4.8942 -0.010
Three-year note 98-72/256 4.6297 -0.013
Five-year note 98-180/256 4.2917 -0.031
Seven-year note 98-216/256 4.1926 -0.048
10-year note 95-232/256 4.0027 -0.070
20-year bond 96-80/256 4.1484 -0.087
30-year bond 94-208/256 3.9208 -0.100
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 33.50 -0.25
U.S. 3-year dollar swap 19.25 -0.50
U.S. 5-year dollar swap 8.25 0.00
U.S. 10-year dollar swap 1.00 0.00
U.S. 30-year dollar swap -39.00 0.50
(Reporting by Davide Barbuscia;Editing by Elaine Hardcastle)