NEW YORK: The benchmark US 10-year Treasury yield edged higher on Friday, with expectations largely set that the Federal Reserve will raise interest rates next week, while comments from Russian President Vladimir Putin briefly buoyed risk-on sentiment.
Yields moved higher after Putin said there had been some progress in Moscow’s talks with Ukraine, but provided no details, citing “certain positive shifts.”
US President Joe Biden banned the US import of Russian vodka, seafood and diamonds on Friday, and joined other Group of Seven (G7) leaders in calling for the revocation of Russia’s “most favored nation” trade status, which would let G7 nations raise tariffs and set quotas on Russian products.
Economic data on Thursday that showed a surge in consumer prices in February to their largest annual increase in 40 years locked in views that the Fed will hike rates at its next policy announcement on March 16.
Expectations of at least a 25 basis point hike at the March Fed meeting stood at 95.9%, according to CME’s FedWatch Tool.
The yield on 10-year Treasury notes was up 1.4 basis points at 2.008%.
“It’s pretty simple and it’s a little bit logical in that rates were at 2% before the Ukrainian war started, then there was a flight to safety whereby gold, Treasuries and the dollar all rallied,” said Jay Hatfield, founder and chief executive of Infrastructure Capital Management in New York.
“Now, particularly with the talk of peace this morning and yesterday’s inflation print, we are back to 2%, which we do believe is where the 10-year is finding a bottom, but we haven’t had nearly enough time trading around this level to determine whether that is the case,” Hatfield added.
US consumer sentiment fell to its lowest level in nearly 11 years, according to the University of Michigan, while one-year inflation expectations climbed to their highest level since 1981.
The 10-year yield is up more than 26 basis points this week, putting it on track for its biggest weekly climb since September 2019.
Economic data expected on Friday includes the preliminary March reading of consumer sentiment from the University of Michigan, which also includes inflation expectations.
The yield on the 30-year Treasury bond was slightly lower at 2.372%.
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 25.4 basis points after flattening to 18.47 earlier in the week.
The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 3.3 basis points at 1.752%.
The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 3.489%, after closing at 3.382% on Thursday, near its record high of 3.402% set on Tuesday, according to Refinitiv data.