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Treasury yields continued to rise Monday as investors prepared for a busy week of economic data, including measures of inflation and inflation exepctations.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.763%
rose to 2.767%, compared with 2.713% at 3 p.m. Eastern on Friday. Yields and debt prices move opposite each other. -
The 2-year Treasury note yielded
TMUBMUSD02Y,
2.577%
was at 2.574% versus 2.518% Friday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.760%
stood at 2.767%, up from 2.745% late Friday. - Based on 3 p.m. levels, the yields on the 10- and 2-year notes Friday were the highest since early March 2019, while the 30-year yield was the highest since May 24, 2019.
What’s driving the market?
Yields rose last week as investors digested remarks by Federal Reserve officials and minutes of the central bank’s policy meeting, which reinforced expectations for a half-point rise in the fed-funds rate at the next meeting in May. The minutes also laid out a plan that would see the Fed begin unwinding its balance sheet as early as next month — though no final decision had been made — at a pace that would eventually reach $95 billion a month as the central bank attempts to rein in inflation running at a nearly 40-year high.
Yields rose more quickly for longer-dated Treasurys, with the 10-year rate rising back above the 2-year rate, unwinding a brief inversion of that closely watched measure of the yield curve.
Read: Recession indicator `not flashing code red’ yet, says pioneering yield-curve researcher
The week ahead features data on inflation, with the New York Fed’s measure of one- and 3-year inflation expectations due at 11 a.m. Monday.
The March consumer price index is due Tuesday morning, while the producer price index for last month is set for release on Wednesday. Thursday brings the University of Michigan preliminary April consumer sentiment readings, including its gauge of five-year inflation expectations.
What do analysts say?
Although the Fed has paving the way for 50-basis-point rate hikes at coming meetings, investors have been more “stunned” by the balance-sheet unwind hinted at in the March minutes, said Raffi Boyadjian, lead investment analyst at XM, in a note.
“Consequently, real yields have also started to edge up, having remained negative even as nominal yields have surged. The 10-year yield on inflation-protected Treasuries (TIPS) has finally started to get fired up and at this rate, it shouldn’t be long before it turns positive,” Boyadian wrote. “Strikingly, this may be what the Fed intended to happen as up until now, there was little tightening in financial conditions in the U.S. despite all the signals of multiple rate hikes, suggesting policy makers hadn’t gone far enough in removing stimulus.”
