Bond Report: 30-year Treasury yield climbs to Nov. 2019 high to end turbulent week as reflation bets heat up

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U.S. Treasury yields rose sharply on Friday, amid worries that a strong economic recovery could push the Federal Reserve to lift interest rates earlier than it has signaled.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 1.623% surged 10.9 basis points to 1.634% Friday, its highest since Feb. 2020, booking an 8.3 basis point weekly rise. The 2-year note rate TMUBMUSD02Y, 0.157% was up a basis point to 0.151%, also logging a single basis point weekly increase. The 30-year bond yield TMUBMUSD30Y, 2.384% climbed 12.1 basis points to 2.401%, its highest since Nov. 2019, and recording a 11.5 basis point rise this week. Bond prices move inversely to yields.

What’s driving Treasurys?

Investors said there wasn’t a clear trigger for the sudden bearish momentum in Friday’s trading that sent the 10-year Treasury note back above 1.60%, but suggested some of the older drivers of higher yields may be reasserting themselves.

See: Here’s how far the Nasdaq could fall if bond yields reach 2%

In particular the Biden administration’s $1.9 trillion fiscal relief package is expected to support the economy through the pandemic, giving aid to households, small businesses and local governments but also perhaps creating inflation.

Investors also are reckoning with the possibility of another $4 trillion being financed in the Treasurys market to pay for U.S. infrastructure.

See also: Biden stimulus will give a major boost to the global recovery, OECD says

So far, the Fed has indicated it will keep policy accommodative for as long as possible. However, investors fret a strong economic rebound and recovery in inflation could force the Federal Reserve into action earlier than it would have intended.

Read: Fed to stay dovish next week as Powell channels his inner Gary Cooper calm

In U.S. economic data, February producer prices rose 0.5%. Meanwhile, the University of Michigan’s consumer sentiment index rose to a reading of 83 in early March from 76.8 in the prior month.

What did market participants say?

“The main reason cited for the selling has been the passage of the U.S. stimulus bill being followed up by a $4 trillion infrastructure bill sometime in the next
few months,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.

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