NEW YORK/LONDON: Selling in US Treasury markets paused on Friday as data showed consumer sentiment plunged to a 10-year low on inflation worries, leaving traders trying to gauge the pace of future central bank interest rate hikes.
The yield on the US five-year note was up 2.3 basis points at 1.2357%, after earlier in the day reaching 1.263%, the highest since February 2020 and up five basis points from Wednesday, the last trading day before bond markets were closed on Thursday.
The note and other Treasuries fell back as the University of Michigan’s consumer sentiment index showed little belief that policymakers are taking sufficient steps to tame inflation.
The moves left key parts of the US yield curve close to milestone lows. For instance the spread between five-year and 30-year Treasuries was at 72 basis points, about two basis points higher than its close on Wednesday. It had reached as low as 62 basis points earlier Friday, its lowest since March 2020.
Kim Rupert, senior economist for Action Economics, said the trading showed investors struggling to forecast whether the US Federal Reserve will accelerate its pace of expected rate hikes in the face of the Michigan data and other indications of price increases.
Economic data on Wednesday showed the biggest annual rise in US inflation in 31 years, for instance, sending yields higher.
“The market is now pricing in a more aggressive Fed tightening structure,” she said. But traders’ mood seemed jittery. “There’s a lot of mixed messages and mixed positioning at this point,” Rupert said.
Wall Street gained on Friday, with market-leading growth stocks helping the indexes resume their climb, contributing to risk-on sentiment.
The benchmark 10-year note was up 2.4 basis points at 1.5818% on Friday. The 10-year breakeven rate held near 2.71%, the highest since May 2006.
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