Treasury yields rose sharply on Friday after signs that U.S. consumer spending remained strong and on receding trade tensions between the U.S. and China.
For the week, yields have seen a searing climb as bond-market traders retreated from their bullish positions on long-term government bonds which had reaped significant gains last month.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +0.00% rose 11.2 basis points to a six-week high of 1.901%, pushing its weekly rise to 35 basis points, its largest such move since June 2013.
The 2-year note rate TMUBMUSD02Y, +0.00% climbed 7.8 basis points to also a six-week high of 1.801%, contributing to a weekly rise of 27 basis points, its largest such move since June 2009.
The 30-year bond yield TMUBMUSD30Y, +0.00% picked up 11.1 basis points to 2.374%, marking its biggest daily rise since November 2016. The long bond’s yield rose 35 basis points this week, its biggest such increase since November 2016. Bond prices move inversely to yields.
The German 10-year government bond yield TMBMKDE-10Y, +0.00% rose 9.3 basis points to negative 0.45%, from their record low of negative 0.72% last set a week ago.
What’s driving Treasurys?
Hopes for an easing of tensions on U.S.-China trade were bolstered after the Chinese Ministry of Commerce said that Beijing would exclude American agricultural products from tariff increases on U.S. imports. President Donald Trump said on Thursday that he was willing to consider an interim trade deal with China.
Investors continued to feel the tremors from the European Central Bank’s pronouncements on Thursday after the central bank issued a full stimulus package that ranged from interest-rate cuts to an open-ended commitment to buying 20 billion euros of bonds every month. Analysts, however, took notice of the lack of consensus within the ECB policy making committee over the recent measures.
U.S. retail sales rose 0.4% in August far above the 0.1% increase expected by MarketWatch polled economists, and were up 4.1 for the year. The University of Michigan’s consumer sentiment index for September rose to a reading of 92, from 89.8 in the prior month.
Looking ahead, investors will watch for the Federal Reserve’s two-day meeting starting from next Tuesday, where the U.S. central bank is expected to carry out a quarter point rate cut.
What did market participants’ say?
“The bond market may have been a bit overbought on the long-end last month, but this sudden shift into optimism on the prospect of a trade deal getting struck and the ability of the Fed to create a steeper curve — I don’t think that’s sustainable. It’s got to take much better data for long-end Treasury yields to break out of this range,” said Karissa McDonough, chief fixed income strategist at People’s United Advisors.