NEW YORK: The steep decline in US Treasury yields since the start of November continued last Friday with those on the benchmark 10-year note briefly falling to the lowest level in two months before inching higher.
Yields have nosedived since touching 16-year highs in late October following a string of economic data that suggests inflation is cooling, boosting market expectations that the US Federal Reserve is done with its rate hiking cycle.
“The markets are jittery and any movements in inflation numbers are going to have an outsized reaction,” said Sweta Singh, a portfolio manager at City Different Investments.
The 10-year US Treasury yield, which moves inversely to its price, is down around 60 basis points from its October peak. The yield briefly fell to 4.37% last Friday before data showing that US housing starts increased marginally in October.
Economists had expected a slight decline. “With so much concern over the resiliency of the all-important consumer, reports suggest that builders do not expect an impending recession,” said Quincy Krosby, chief global strategist for LPL Financial.
In mid-day US trading, the 10-year yield was up 1.4 basis points at 4.459%, while the yield on the 30-year US Treasury bond was down 0.8 basis points at 4.615%. The two-year yield, which typically moves in step with interest rate expectations, was up 6.7 basis points at 4.909%.
Despite last Friday’s gains, two-year US Treasury yields are on track for the largest weekly fall since the start of September.
The gap between yields on two and 10-year US Treasury notes, seen as an indicator of economic expectations, slightly widened. The curve inversion was at negative 44 basis points last Friday, compared with negative 38 basis points the day before, and remains near its deepest point since early October.
Market participants are likely pausing to digest the week’s large declines in yields, especially given the holiday-shortened week this week, said Christopher Gunster, head of fixed income at Fidelis Capital.
“The move the last couple of weeks has been interesting in terms of velocity, but we are going to have to get used to more volatility” as futures markets try to predict the timing of the first rate cut by the Fed, he said. — Reuters
