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Most Treasurys were under pressure early Friday, pushing up the yield on the 10-year note for a sixth straight day, as investors assess the Federal Reserve’s likely policy path.
What are yields doing?
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The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.679%
was 2.669%, compared with 2.654% at 3 p.m. Eastern on Thursday, which was its highest since March 6, 2019. Yields and debt prices move opposite each other. -
The 2-year Treasury note yield
TMUBMUSD02Y,
2.515%
was 2.507% versus 2.462% Thursday afternoon. -
The 30-year Treasury bond yield
TMUBMUSD30Y,
2.698%
was 2.682%, down slightly from 2.688% late Thursday, which was its highest since May 28, 2019.
What’s driving the market?
Investors this week were digesting the Federal Reserve’s plans to begin unwinding its balance sheet, with minutes of the March policy meeting on Wednesday offering details. It showed policy makers want to reduce the balance sheet by up to $95 billion a month after a three-month phase-in. The process could potentially begin in May, but policymakers have yet to make a final decision, the minutes said.
Yields at the long end of the yield curve have risen over the course of the week, while investors have snapped up shorter-dated maturities, pulling down the yield of the 2-year Treasury note. That’s undone a brief inversion of the yield curve that saw the 2-year yield trade above the 10-year. Persistent inversions of that portion of the curve are seen as a significant recession warning signal.
Investors continue to monitor developments in the Russia-Ukraine war. A Russian missile attack on a train station in eastern Ukraine killed more than 30 people and injured more than 100, Ukrainian officials said.
The economic calendar is light Friday, with revised data on February wholesale inventories due at 10 a.m.
What are analysts saying?
What’s behind the rally at the short end of the curve that’s seen the yield on the 2-year Treasury note pull back from its intraday peak around 2.6% on Wednesday?
“The short answer is that the front-end of the curve got a bit ahead of itself in the process of pricing in what the Fed is likely to deliver over the course of the next 24 months,” said strategists Ian Lyngen and Ben Jeffery of BMO Capital Markets in a note.
“The impetus of this collective rethink is less obvious — leaving us cautious of assuming the steepening move has significantly further to run; the front-end bullishness will eventually run up against the realities that the Fed is hiking 50 [basis points] next month and in all likelihood will follow through with another half-point in June,” they wrote.
