Longer-term yields stabilize, intermediate yields fall after auctions

Longer-term US Treasury yields stabilized on Friday after a run-up the day before on the Federal Reserve's new approach to inflation, while investors rebalanced intermediate-dated debt following large auctions earlier this week.

The benchmark 10-year yield was down 1.3 basis points at 0.7326% in morning trading, while the 5-year note was down 2.4 basis points at 0.2862%.

US Treasury auctions of roughly $150 billion worth of 3-year, 5-year and 7-year notes received strong demand starting on Tuesday. The decline in yields on each of those instruments on Friday likely reflected traders repositioning, said Subadra Rajappa, head of US rates strategy for Societe Generale.

"A lot of this movement I would chalk off as more month-end buying, as opposed to anything fundamental," she said.

Longer-term yields climbed sharply after Fed Chair Jerome Powell on Thursday unveiled the US central bank's new approach to monetary policy that puts more emphasis on fighting shortfalls in unemployment and less weight on concerns about higher inflation.

The yield on the 30-year US bond reached as high as 1.5770% after Powell spoke, its highest since June 16. It was unchanged at 1.5003% in morning trading on Friday.

US consumer spending increased more than expected in July, new data showed, strengthening expectations for a sharp rebound in economic growth in the third quarter, though momentum is likely to ebb as the COVID-19 pandemic lingers and fiscal stimulus dries up.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 59 basis points, about a basis point less than Thursday's close, a level unseen since June 10.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 1.5 basis points at 0.1426%.