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Bond Report: Treasury yields rise but mostly stand pat in holiday-shortened week

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Longer-dated U.S. Treasury yields were edging higher Friday, though U.S. stock indexes were lower, while the rise in wholesale inflation moderated in August.

However, the holiday-abbreviated stretch of trading—U.S. markets were closed on Monday in observance of Labor Day—has brought yields for government debt full circle, little changed from the end of last week.

What yields are doing
  • The 10-year Treasury note yields
    TMUBMUSD10Y,
    1.337%

    1.337%, versus 1.300% on Thursday at 3 p.m. Eastern Time.
  • The 30-year Treasury bond rate
    TMUBMUSD30Y,
    1.943%

    was at 1.945%, after trading at 1.898% a day ago.
  • The 2-year Treasury note yields
    TMUBMUSD02Y,
    0.220%

    0.217%, up slightly from 0.214% on Thursday.
What’s driving the market?

Treasury yields remain largely rangebound, even as wholesale inflation remained elevated, though off July’s highs.

The U.S. producer-price index rose 0.7% in August, down from a 1% jump in July. Economists polled by The Wall Street Journal had forecast a 0.6% advance.

In the bond market, the yield on 10-year Treasury notes ticked up to 1.337% from 1.300% Thursday and 1.322% on Friday, putting yields to end mostly flat for the week.

Meanwhile, a recent report from WSJ indicates that Federal Reserve officials could begin setting the stage for the tapering of its monthly bond purchase program of $120 billion in Treasurys and mortgage-backed securities at its Sept. 21-22 meeting, with an announcement of its plans at the following meeting in early November.

The report comes as a number of voting members of the Fed’s policy committee voice support for rolling back the monetary accommodation that provided liquidity to markets during the worst of the pandemic.

On Thursday, Federal Reserve Gov. Michelle Bowman said the labor market was “very close” to the hurdle needed for the central bank to start slowing its bond purchases.

On Friday, Cleveland Fed President Loretta Mester said that the August employment report didn’t alter her view that the central bank should begin to slow down its monthly purchases of bonds this year.

Meanwhile, economists are predicting that the Fed will begin raising interest rates, which currently stand at a range between 0% and 0.25%, next year, according to a survey by the Financial Times’ Initiative on Global Markets at the University of Chicago Booth School of Business. An increase in benchmark interest rates next year would be far sooner than the 2023 projections that Fed officials penciled in back in the summer.

What analysts are saying

“Near-term upside for US growth momentum and more hawkish Fed pricing should lift bond yields,” writes Sebastian Raedler, investment strategist at BofA Global Research, in a note published on Friday. “We think the loss of US growth momentum since mid-Q2 has been a key driver of the 40bps pull-back in the US bond yield from its March peak, with rates closely tracking the decline in US macro surprises,” he wrote. 

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