Treasuries outlook: US, Chinese data lift US bond yields ahead of supply

US Treasury yields climbed on Friday with benchmark yields marking a fifth consecutive week of increases on stronger-than-forecast data on China inflation and US consumer sentiment ahead of $56 billion in government debt supply next week. The rise in US yields was also underpinned by ongoing bond sales after the European Central Bank's decision on Thursday to reduce its monthly bond purchases to 60 billion euros from the current 80 billion euros, starting in April, as it extended its quantitative easing into the end of 2017.
"It's still accommodative but it's acknowledgement it has reached its limits," said Michael Arone, chief investment strategist at State Street Global Advisors in Boston. Treasury yields briefly retreated from their earlier peaks on safe-haven bids for US bonds following reports the ECB rejected Monte Paschi's request for an extension to raise cash intended for a rescue plan so the struggling Italian lender could avert being wound down.
The benchmark 10-year Treasury note yield was last at 2.467 percent, up 8 basis points from Thursday and not far from a near 1-1/2 year peak set on December 1. The 10-year yield recorded its longest streak of weekly increase since May-June 2013, a period known as the "taper tantrum" after then Federal Reserve Chairman Ben Bernanke hinted the Fed was considering shrinking its bond purchases.
The yield on 30-year bonds touched 3.171 percent, its highest since July 2015 before edging down to 3.159 percent in late trading, up 7 basis points on the day. Since the November 8 US election, investors have been dumping bonds globally on bets of faster growth and inflation under a Trump administration. Inflation worries were reinforced after data showed China's producer prices rose at the swiftest rate in more than five years in November.
US consumer sentiment strengthened to its strongest since January 2015 in early December, although the outlook for consumer inflation fell, according to the University of Michigan. Prospects of improvement in the world's two biggest economies supported the view the Fed is on track to raise interest rates further in 2017 after a near-certain quarter point hike next week.
Investors may be reluctant to bid aggressively for the upcoming Treasuries supply before the Fed's rate decision, analysts said. The Treasury Department will sell $24 billion of three-year notes and $20 billion in 10-year notes on Monday and $12 billion of 30-year bonds on Tuesday.