Benchmark 10-year notes yields were last up 1.6 basis points (bps) at 4.312%, marking the fifth consecutive day of rising yields. U.S. two-year yields were 3.2 bps higher at 4.723%. Both were at the highest since Feb. 27.
Friday’s U.S. economic data showed U.S. industrial production remained relatively flat in February, advancing only 0.1% from January, while manufacturing orders rose 0.8% in February after being revised down sharply in January. The cost of imported goods rose in February for the second month in a row.
Yields extended gains on this week’s news of higher-than-expected inflation. These include February’s consumer price index (CPI) on Tuesday, which rose 0.4%, largely driven by higher gasoline and shelter costs. Thursday’s producer price index (PPI) also exceeded forecasts, rising 0.6% in February versus 0.3% expected.
Traders in Fed funds futures reduced bets that the Fed will cut rates by June to 57.1%, from 62.5% on Thursday, according to the CME Group’s FedWatch tool. While the timing is in question, traders still see at least two rate cuts by the end of 2024.
The Fed is expected to hold rates steady when it meets next week, with the market focused on policymakers’ updated economic and interest rate projections. “Everything is gradually coming in the direction that the Fed wants it to,” said Michael Lorizio, senior fixed income trader at Manulife Investment Management. “Even though we did get some new information. I don’t think it’s really changed the landscape all that much, which has to do with the cumulative effect of data releases.”
The inversion in the yield curve between two-year and 10-year notes widened slightly to minus 41.3 basis points from minus 40.7 basis points on Tuesday.
New consumer sentiment data from the University of Michigan showed sentiment for the U.S. economy declined in February from January. This put a slight damper on Treasury yields’ rise, said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.
The survey showed inflation expectations over one year remained unchanged at 3%. But this increased to 2.7% from 2.4% over a three-year span, and to 2.9% from 2.5% over five years.
“Treasuries were weaker in the set-up to the University of Michigan print and since the data we’ve seen yields partially retrace off the day’s peaks,” Lyngen wrote in a Friday note.
The yield on existing 30-year bonds remained relatively flat on Friday, ticking up 0.8 bps to 4.446% on the day. (Reporting by Matt Tracy in Washington; Editing by Richard Chang)
