Saturday May 28, 2022

Treasury yields bounce higher after a choppy week

Treasury yields bounced Friday as traders looked to close out a choppy week that saw rates seesaw in response to inflation data and a steep stock-market selloff.

What yields are doing
  • The yield on the 10-year Treasury note TMUBMUSD10Y,
    rose to 2.899%, up from 2.815% at 3 pm Eastern on Thursday. Yields and debt prices move opposite each other.

  • The 2-year Treasury yield TMUBMUSD02Y,
    was at 2.578%, up from 2.52% Thursday afternoon.

  • The yield on the 30-year Treasury bond TMUBMUSD30Y,
    rose to 3.061% versus 2.985% late Thursday.

What’s driving the market

It’s been a choppy week for Treasurys, with the yield on the 10-year note a roughly 3 1/2-year high above 3.2% during Monday’s session before pulling back. Yields bounced after a hotter-than-expected inflation reading on Wednesday, but then pulled back as a continued rout in fueled stocks haven-related buying by investors seeking safety.

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Stocks have tumbled hard this week, pushing the S&P 500 SPX,
to the brink of a bear market. Equities appeared set for a bounce on Friday, however.

Read: The S&P 500 is on the brink of a bear market. Here’s the threshold.

In an interview aired late Thursday on National Public Radio’s Marketplace program, Federal Reserve Chairman Jerome Powell warned that the central bank’s ability to tighten policy without sending the economy into a steep downturn wasn’t up to policy makers.

“So the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control,” Powell said. The Fed chief, who won’t confirm for another four-year term from the Senate on Thursday, underlined the Fed’s aim to get inflation under control and acknowledged that policy makers probably should have moved earlier to begin raising rates.

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Powell quibbled with the suggestion that last week he had taken the prospect of a 75 basis point rate rise off the table, emphasizing that he had said, “We weren’t actively considering that.”

“But I would just say, we have a series of expectations about the economy. If things come in better than we expect, then we’re prepared to do less. If they come in worse than we expect, then we’re prepared to do more,” he said.

Economic data ahead includes April import prices at 8:30 a.m., followed by the University of Michigan consumer sentiment index for May at 10 a.m. and comments by Minneapolis Fed President Neel Kashkari at 11 a.m.

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What analysts are saying

The market “is clearly caught between the prospect of persistently elevated inflation on one side and recession on the other. As a result, sentiment seems to be moving sharply from high inflation to recession and back again, with the result that government bonds are seeing huge volatility,” said Steve Barrow, head of G-10 strategy at Standard Bank, in a note.

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