Market Rally Pushes 10-Year Treasury Yields Lower for Sixth Straight Week
A late rally in the US Treasury market pushed the yield on 10-year notes lower for a sixth-straight week as traders hunted for safety amid lower stock and oil prices.
Unprecedented Economic Data and Inflation Concerns
The advance pushed yields lower across maturities on Friday, following unexpectedly weak economic data and an uptick in consumers’ long-run inflation views to the highest since 1995. The yield on 10-year notes fell by as much as 10 basis points in afternoon trading, echoing losses in equities.
Expert Insights
"The ‘strong growth’ narrative is being challenged today," said Ed Al-Hussainy, global rates strategist at Columbia Threadneedle, adding that moves stand to be exacerbated by lower liquidity in a Friday afternoon.
Market Reaction
The 10-year yield on Friday fell as far as 4.4 per cent, the lowest since February 7, before slightly paring the move. It is on pace for a sixth-straight week of declines, the longest falling streak since 2019. The Bloomberg Dollar Spot Index was higher by 0.2 per cent. Crude oil fell almost 3 per cent.
Interest Rate Cuts
Traders also priced in more interest rate cuts by the Fed this year, putting approximately 28 per cent chance of a 25-basis-point reduction in May compared to 16 per cent priced at Thursday’s close. They’re now pricing in the central bank’s first 2025 cut in July rather than September.
Economic Data and Inflation Expectations
The moves began earlier in the day after survey reports showed US business activity slowed, consumer confidence waned, and inflation expectations surged. They extended later in the afternoon as traders circulated a study showing researchers in China said they discovered a new coronavirus in bats.
Conclusion
The bond rally is a combination of the market believing that the Department of Government Efficiency’s efforts to cut US spending may have a larger negative impact on the US economy than initially anticipated and the tightening of financial conditions associated with lower equity prices.
FAQs
Q: What is the current state of the US Treasury market?
A: The 10-year yield on Friday fell as far as 4.4 per cent, the lowest since February 7.
Q: What is the current trend in interest rate cuts?
A: Traders are pricing in more interest rate cuts by the Fed this year, with approximately 28 per cent chance of a 25-basis-point reduction in May.
Q: What are the key economic data releases next week?
A: The Fed’s favored inflation gauge – the personal consumption expenditure price index – will be released, along with government auctions of two-, five- and seven-year notes totaling US$183 billion.
