What are yields doing
- The 10-year Treasury note rate
was at 1.754%, compared with a reopening rate of 1.708%, based on yields at 3 p.m. Eastern Time on Thursday.
- The 30-year Treasury bond yields
2.096%, up from 2.053% a day ago.
- The 2-year Treasury note
yields 0.936%, versus 0.897% on Thursday afternoon.
- For the week, the 10-year Treasury note was down 1.5 basis points from last Friday’s levels at 3 p.m., while the 30-year was down 2 basis points. The 2-year was up 6.8 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 much of the week, though the 2-year has been sold — pushing its yield higher.
Still, analysts 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. However, 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 Fed’s No. 2, told a Senate finance panel on Thursday that efforts to reduce inflation were the Fed’s most important task.
Data released on Friday showed that U.S. retail sales sank 1.9% for December, as omicron spread and shoppers confronted higher prices due to shortages and soaring inflation. Economists polled by The Wall Street Journal had forecast a 0.1% decline in December.
Industrial output fell a disappointing 0.1% in December as auto production stumbled, compared to Wall Street expectations for a 0.2% gain. Capacity utilization — which reflects the limits to operating the nation’s factories, mines and utilities — inched lower to 76.5% in December from 76.6% in the prior month.
Meanwhile, a closely followed gauge of U.S. consumer sentiment from the University of Michigan fell to 68.8 in January from 70.6 in the prior month, marking the second lowest reading in a decade.
What strategists are saying
“A difficult stock market close contributed to the 10-yr’s fast trip below 1.70% yesterday,” wrote Jim Vogel, executive vice president at FHN Financial, in a daily research note. One of the three factors that “accounted for the speed and size of the yield decline across the entire curve” was the large-scale buying in 5-year Treasury futures, which “surprised traders.”