10-year U.S. Treasury yield surges to highest level in nearly a year

U.S. Treasury yields rose sharply on Friday, amid worries that pent-up inflationary pressures would hurt the value of longer-dated debt.

The U.S. bond market is closed Monday for the Presidents Day holiday.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 1.205% rose 4.2 basis points to 1.199%, around its highest levels since March, marking a 3.1 basis point weekly gain, The 2-year note rate TMUBMUSD02Y, 0.101% was flat at 0.111%, and unchanged for the week. The 30-year bond yield TMUBMUSD30Y, 2.009% surged 6 basis point to 2.003%, its highest since last February, leaving it up 3 basis points for the week.

What’s driving Treasurys?

Investors cited the ongoing concern about inflation rising as the economy recovers, given the huge amount of fiscal and monetary stimulus administered by Congress and the Federal Reserve in the past year.

Prospects for a $1.9 trillion fiscal relief package and deliveries of new vaccines are expected to spur a faster recovery and power consumer prices higher.

Bond investors’ expectations for inflation over the next decade stood at 2.22%, the highest since 2014.

Treasury Secretary Janet Yellen on Friday called for further fiscal support to promote a lasting economic recovery, in a virtual meeting with G7 finance ministers and central bank governors.

See: U.S. budget deficits to be near or above $1 trillion annually over next decade, Congressional Budget Office says

In U.S. economic data, a gauge of consumer sentiment tracked by the University of Michigan for February came in at a six-month low of 76.2. The report suggested average households still remain pessimistic over the health of the economy and its prospects.

Elsewhere, the U.K. economy reported its worst annual economic performance in three centuries, with gross domestic product falling by 9.9% in the course of 2020.

What did market participants say?

“The best days for a U.S. long bond generally exist with the Fed is tightening and acting as a defender against inflation in the most simplistic sense. We now exist in a world that is completely opposite,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities.

By: Sunny Oh