U.S. Treasury yields stabilize – WSJ

Yields, which rise as bond prices fall, rose sharply on Thursday as weekly sales intensified, driven by bets that the Federal Reserve will begin raising interest rates earlier than expected in response to investors expect it to be an explosion of economic growth and inflation by the end of this year.

The 10-year performance recorded its biggest one-day gain since Nov. 9 during Thursday’s session to finish at its highest closing level in a year. The five-year yield, which is more sensitive to short-term interest rate prospects, experienced its biggest one-day gain in more than ten years.

While higher yields helped investors regain Treasurys appetite on Friday. Demand also rose as it was the last trading session of the month, as many fund managers buy Treasurys to match adjustments to their benchmark bond indices.

While many investors expected the ten-year yield to rise in 2021, the jump to 1.5% from 1% in a matter of weeks raises some concerns. While Fed officials have said the rise in yields to pre-pandemic levels marks a return to normalcy, some investors worry that their concern could drive more sales.

“Thursday’s rate hike shows some signs of the dysfunction caused by Fed action in March [2020]Bank of America analysts wrote in a note Friday. “However, the Fed will face the challenge of backtracking aggressively, as they have so far described it as a reflection of ‘healthy’ factors.”

After falling overnight, yields rose early Friday after the Commerce Department released new data showing that U.S. household incomes rose 10% in January and that consumer spending rose 2.4%, suggesting the economy is poised for a burst of growth this year.

Investors tend to sell treasury when they expect faster growth and inflation, which reduces the value of fixed bond payments and can cause the Fed to raise interest rates. His optimism has recently been dampened by improved economic data, the government’s promise of more spending, and expanded distribution of coronavirus vaccines.

Friday’s yield declines were caused by long-term bonds, with the yield on the 30-year bond falling to 2.187% from 2.303% on Thursday.

Despite global selling pressure, the gap between short- and long-term returns has narrowed in recent sessions after growing steadily earlier in the year. Along with pointing to a shift in expectations about when Fed rates will rise, some analysts said the gap between short- and long-term yields had simply become too large and needed to be corrected. .

The gap, or differential, between 5- and 30-year treasury yields ended Friday at 1,412 percentage points, below Thursday’s 1,504 and the tightest one-month spread.

Write to Sebastian Pellejero at [email protected] and Sam Goldfarb at [email protected]