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Treasury yields fell on Friday and ended mixed for the week following a spate of interest-rate increases by global central bankers that left investors in a risk-averse mood.
What happened
-
The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.754%
slipped 4.9 basis points to 4.748% from 4.797% on Thursday. -
The 10-year Treasury note yield
TMUBMUSD10Y,
3.741%
fell 6 basis points to 3.737% from 3.797% on Thursday. - The yield on the 30-year Treasury bond BX:TMUBMUSD30Y fell 5.3 basis points to 3.819% from 3.872% on Thursday.
- Friday’s moves represented the largest one-day declines in the 2- and 10-year rates since June 15, and the biggest daily drop for the 30-year yield since June 14, based on 3 p.m. Eastern time figures from Dow Jones Market Data.
- For the week, the 2-year yield advanced 2.8 basis points. Meanwhile, the 10-year rate declined 3.1 basis points and the 30-year yield fell 3.6 basis points on a weekly basis.
Market drivers
Investors continued absorbing a flurry of interest-rate hikes by central bankers in Europe delivered on Thursday, notably a bigger-than-expected, 50-basis-point hike from the Bank of England. The concern is that policy makers could push too hard in their inflation fight and tip economies into recession.
Data released on Friday showed a loss of momentum for business activity in the eurozone for June, according to a purchasing managers’ survey. Earlier this month, the European Central Bank vowed to keep pressing on with interest-rate hikes. And the Federal Reserve is also expected to increase rates twice more this year.
Jumpy investors drove up the dollar
DXY,
which rose 0.5% on Friday based on the ICE U.S. Dollar Index. Ten-year yields on the U.K. gilt
TMBMKGB-10Y,
slid 5.3 basis points to 4.318%, while the corresponding rate on German bunds
TMBMKDE-10Y,
dropped 14.2 basis points to 2.359%.
In the U.S. on Friday, there were also signs of slowing economic growth. The S&P flash U.S. service sector purchasing managers index fell to 54.1 in June from 54.9 in the prior month, while the flash manufacturing PMI dropped to 46.3 from 48.4.
However, investors took note of comments from U.S. Treasury Secretary Janet Yellen, who said in a Bloomberg interview published Friday that recession risks have faded “because look at the resilience of the labor market, and inflation is coming down.”
Meanwhile, one of the bond market’s most reliable gauges of impending U.S. recessions — the spread between 2- and 10-year Treasury yields, was back in solidly triple-digit negative territory.
What analysts are saying
“After bigger than expected rate hikes in the UK and Norway yesterday, the markets are nervous about upside rate surprises, and that was helping the dollar overnight, even before we saw the European PMI data,” said Kit Juckes, chief FX strategist at Societe Generale.
“U.S. resilience is clear, but saying a recession looks unlikely is only encouraging if inflation can be brought down without one,” Juckes wrote in a note to clients.
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