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Bond Report: U.S. Treasury yields climb amid global reflation fears

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U.S. Treasury yields rose Friday, trimming their weekly drop amid signs that reflationary forces were brewing in the global economy, a concern among bond investors.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.660%

rose 3.2 basis points to 1.664%. The benchmark maturity fell 5.7 basis points this week.

The 2-year note rate
TMUBMUSD02Y,
0.152%

gained 0.8 basis point to 0.157%, trimming its weekly drop to 2.7 basis points, while the 30-year bond yield
TMUBMUSD30Y,
2.333%

added 1.8 basis points to 2.340%, paring its weekly decline to 2.4 basis points.

What’s driving Treasurys?

The bond market grappled with inflation fears at the end of the week, following economic data showing factory prices in China had risen the most in over two years as businesses looked to pass on higher raw material costs.

See: The biggest ‘inflation scare’ in 40 years is coming — what stock-market investors need to know

Chinese producer prices grew by 4.4% in March year-over-year, though consumer prices saw a more muted increase of 0.4%.

And in the U.S., a gauge of wholesale prices for last month rose 1%, leaving the rate of wholesale inflation over the past 12 months at 4.2% in March.

Investors have shown increased attention to more supply-driven sources of inflation this year amid reports of gummed-up supply chains, climbing commodity prices and a surge in shipping costs.

But senior officials from the Federal Reserve have largely downplayed such concerns. Fed Vice Chairman Richard Clarida, in a Friday interview, said that any rise in inflation would be transitory, echoing remarks from Fed Chairman Jerome Powell.

What did market participants say?

“From here, the market will continue to prepare for the early-week auction of 10s and 30s with a wary eye on the ongoing bid for risk assets,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

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