US yields rise as 10-year on pace for largest monthly gain since ‘09

02 May, 2022

NEW YORK: Yields of Treasuries rose slightly on Friday following data that showed monthly inflation surged by the largest amount since 2005 in March, capping the largest gain in benchmark 10-year Treasury yields since December 2009.

The 10-year Treasury note yield rose 2.6 basis points to 2.889%. The 30-year Treasury bond yield was up 2.3 basis points at 2.952%.

The benchmark 10-year yield is on track to rise 109 basis points over March and April, the largest gain since March 1994.

Strong consumer spending helped push yields higher and dampen concerns about a US economic slowdown. The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of US economic activity, surged 1.1% last month, well above the 0.7% increase expected by economists polled by Reuters.

The personal consumption expenditures (PCE) price index, meanwhile, rose 0.9% in March, the largest gain since 2005, after climbing 0.5% in February. The PCE price index jumped 6.6% over the 12 months ending in March, the largest annual gain since 1982.

The muted response on Friday may be a sign that investors have priced in an aggressive rate hiking cycle by the Federal Reserve, said Joseph Kalish, chief global macro strategist, at Ned Davis Research in Sarasota, Florida.

“It’s going to take a lot more now to maybe get the market to move beyond what we have seen priced in on the long end of the curve,” he said.

The strong economic numbers may lead to a more hawkish response from the Federal Reserve, said Ian Lyngen, head of US Rates Strategy at BMO Capital Markets.

“The operating assumption in the market at the moment is that the Fed has sufficient flexibility to ratchet up the pace of hiking in response to any further acceleration of inflationary pressures,” he said.

The central bank is widely expected to raise interest rates by 50 basis points at its meeting next week.

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 17.4 basis points.

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