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Bond Report: 10-year Treasury yields end higher, but post biggest weekly decline since December

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U.S. Treasury yields finished higher on Friday, but left a weekly decline intact as investors digested a raft of data pointing to the struggles of the consumer at the start of the year.

However in the bigger picture bond traders remain concerned about the potential for the Biden administration’s $1.9 trillion fiscal stimulus and pent-up household spending to course through the economy in the months ahead, releasing inflationary pressures.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.684%

climbed 4.4 basis points to 1.658%, trimming a 7.1 basis points decline this week, its largest such increase since December.

The 2-year Treasury yield
TMUBMUSD02Y,
0.144%

was up 0.6 basis point to 0.141%, trimming its weekly decline to 0.8 basis point. Meanwhile, the 30-year Treasury rate
TMUBMUSD30Y,
2.386%

was up 3.1 basis points to 2.365%, trimming its weekly decline to 8.6 basis points.

What’s driving Treasurys?

Fears of inflation continued to dominate the thoughts of bond traders, with U.S. Treasury yields climbing Friday. Still, yields ended lower for the week as the bond market took a breather from the selling pressure seen across March.

Adding to the theme of economic optimism, U.S. President Joe Biden said he aimed to double vaccinations to 200 million in the first 100 days.

Investors also noted the tepid demand for a batch of 7-year notes auctioned by the U.S. Treasury on Thursday afternoon, underlining the uncertainty around the capacity of investors to soak up fresh debt issuance in the face of increased bond-market volatility.

In U.S. economic data, consumer spending dropped 1% last month, while personal income fell 7.1% in February. Personal consumption expenditures, the Fed’s favored inflation gauge rose 0.2% in February. The final reading of consumer sentiment in March rose to 84.9 points from 83 earlier in the month, according to a survey produced by the University of Michigan. 

The Federal Reserve plans to “gradually roll back” its $120 billion-a-month bond purchase, but only once the U.S. economy has more fully healed from the pandemic, according to Fed Chairman Jerome Powell in an interview on Thursday.

See: Powell says Fed will ‘gradually’ cut its bond-market footprint — some think this year

What did market participants say?

“As a week of rallying bond markets draws to a close the question is whether the reflation story been put to rest. We don’t think so and rather think a mix of Covid gloom and technical factors towards the quarter end has been behind the lower yields of late,” said Antoine Bouvet, senior rates strategist at ING.

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