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Treasury yields rose early Friday, on pace to cap a week long increase, ahead of U.S. economic data that will give a snapshot of third-quarter growth and the health of the consumer.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +0.79% rose 3.4 basis points to 1.942%, after it flirted with its a recent high of 1.95% on Thursday. The 2-year note rate TMUBMUSD02Y, +1.04% was up 1.9 basis points to 1.640%, while the 30-year bond yield TMUBMUSD30Y, +0.34% edged 2.7 basis points higher to 2.371%.
The spread between the 2-year note and the 10-year note yield stood at 30 basis points, near its steepest levels in a year. A positive sloping yield curve can reflect confidence that growth and inflation will stay healthy.
What’s driving Treasurys?
Traders face a round of U.S. economic data Friday. A revision of the third-quarter gross domestic product growth is due at 8:30 a.m. ET, with analysts expecting an annualized pace of 2.1%. The University of Michigan’s consumer sentiment survey for December is also set for release at 10 a.m., along with personal consumption expenditure data for last month from the Commerce Department.
Additional signs that consumer spending and income is holding up could confirm recent signs the economy is not headed for recession as reflected in higher Treasury yields. Since the announcement of a U.S – China trade deal, analysts across Wall Street have started to forecast a stabilization of the U.S. and global economy next year.
The buoyant mood in equities has also sapped appetite for long-term government paper. The S&P 500 SPX, +0.45% is up more than 27% this year, leaving it poised for its best annual performance since 2013.
In central banking news, the Bank of England named Andrew Bailey, head of the Financial Conduct Authority, to replace Mark Carney.
What did market participants’ say?
“The overnight session saw more position-squaring ahead year-end with most buyers sidelined ahead of Christmas week,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.
He suggested the bearish pressure in government paper could be due to market participants preparing for a potential spike in overnight repo rates, a move that could force leveraged traders to unwind their Treasury positions that are used as collateral for repo financing.
