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U.S. Treasury yields turned mixed early Friday, a day after Federal Reserve Chairman Jerome Powell affirmed a half percentage point interest rate increase was on the table in May with possibly more to come in future meetings.
The 2-year yield, or rate most closely associated with Fed policy, continued to climb. However, buyers reemerged for 7- to 30-year Treasurys, pushing those rates lower during morning trading.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.892%
fell to 2.892%, down from 2.917% at 3 p.m. Eastern on Thursday, which was its highest since Dec. 4, 2018, according to Dow Jones Market Data. -
The 2-year Treasury yield
TMUBMUSD02Y,
2.717%
was 2.743% versus 2.693% Thursday afternoon, the highest since Dec. 17, 2018. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.920%
dropped to 2.911% from 2.932% late Thursday.
What’s driving the market?
Traders continue to assess comments made on Thursday by Fed Chairman Jerome Powell, who, speaking in a panel discussion at an International Monetary Fund event, said “50 basis points will be on the table” at the May meeting. Several top Fed officials had previously indicated such a half percentage point move, rather than the typical quarter-point increment, was likely in May.
The move would follow a 25 basis point hike in March and mark the first time the Fed has increased rates in consecutive meetings since 2006. Policy makers are attempting to combat an annual headline U.S. inflation rate that’s running at 8.5% as of March.
Read: Fed chief Powell backs moving more quickly on interest-rate hikes
In U.S. economic data, S&P Global’s preliminary purchasing managers index for the manufacturing sector rose to 59.7 in April from 58.8. Meanwhile, the services PMI dropped to 54.7 in April from 58.0. A reading of more than 50 still indicates growth in activity.
What are analysts saying?
Treasury yields “surged again on the idea of even more rate hikes, specifically that the Fed could hike 50 bps (basis points) in May, June and July,” said Tom Essaye, founder of Sevens Report Research, in a note.
“Bottom line, the Treasury market continues to play ‘catch up’ with expected rate hikes and now the market appears to pricing in 150 bps of hiking by the end of the July meeting, which is flattening the curve more. If the 10s-2s yield curve continues lower and re-inverts, that will reinforce the signal that the economy is likely headed for a future slowdown, one likely less than a year away,” he wrote.
