US two-year yield records largest weekly increase since May * US two-year/10-year yield curve widens inversion * US consumer confidence survey indicates greater inflation forecast Composed by Gertrude Chavez-Dreyfuss November 10, New York (Reuters) – Friday’s U.S. Treasury yields were uneven, with the long end slightly lower, as investors pared down their holdings following the previous session’s significant gains, which were attributed to the markets’ interpretation of Federal Reserve Chair Jerome Powell’s remarks as hawkish. Investors are now anticipating the release of important inflation data the following week. Thursday witnessed a dramatic increase in U.S. rates following a much weaker-than-expected 30-year bond auction with little demand following strong sales of three-year and 10-year notes earlier in the week.
Powell’s more hawkish comments, which effectively pushed back any talk of interest rate decreases, came next. The short-term air pocket that caused yesterday’s yield increase was explained by Brian Reynolds, chief market strategist at Reynolds Strategy in Massachusetts. “The 10-year now is in a range, about 30 basis points lower than last week, which is great because this means that we’re holding the rally and that demand for bonds has gone up,” he stated. The benchmark 10-year yield fell 1.4 basis points (bps) to 4.614% during midday trade.
After a lacklustre 30-year auction on Thursday, 10-year rates saw their largest one-day increase in over three weeks. The University of Michigan’s consumer mood survey revealed that expectations for inflation in the upcoming year increased in November for a second consecutive month to a seven-month high of 4.4%. Despite this, U.S. rates moderated their slide. Consumers anticipate inflation to average 3.2% over the next five years, up from 3.0% in October—the highest level since March 2011. The two-year yield, which is a good indicator of future interest rates, increased by 2.8 basis points to 5.049%. Since late May, it has had its largest weekly increase. The yield on 30-year US bonds dropped 3.6 basis points to 4.731%.
The difference between the U.S. two-year and 10-year rates was last at -43.60 basis points, indicating that the yield curve continued to invert on Friday. Market players labelled Friday’s yield curve shift as a “bull flattener,” meaning that rates fell considerably more sharply on the long end of the curve than they did on the short end. According to economists, this is a scenario that often occurs before the Fed lowers interest rates. Based on the CME’s FedWatch tool, U.S. rate futures on Thursday priced in a 58% likelihood of a rate decrease at the June meeting. As of late Thursday, those odds were around 61%. Right now, the market is accepting the idea that the Fed is done. Really, nothing has changed,” remarked Greg Faranello.
The data is what has the power to confirm or refute that. Tuesday’s CPI is the first data item we examine,” he continued. According to a Reuters survey, Wall Street experts predict that the headline inflation rate dropped to a 0.1% increase in October from a 0.4 increase in September. As of previous month, the core inflation rate was predicted to be 0.3%, unchanged from September. Some analysts indicated that the market has not been significantly affected by the ransomware assault that was launched on Thursday against the largest lender in China, the Industrial and Commercial Bank of China (ICBC), which was purported to have interfered with the settlement of US Treasury bonds.