bond report
Treasury yields were under pressure in a short day of trading on Friday following a selloff in European bonds, with investors becoming more concerned about interest rates and government borrowing needs.
The yield on 2-year Treasuries rose 4 basis points to 4.938%. Yields rose 2.7 basis points to 4.908% on Wednesday.
The yield on 10-year Treasuries rose 6 basis points to 4.466%. Before the Thanksgiving holiday, yields slipped less than 1 basis point to end at 4.415%, ending a five-day streak of declines that was the longest since April 5, according to Dow Jones Markets data.
The yield on 30-year Treasuries rose 6 basis points to 4.604%. Yields fell 3.2 basis points to 4.547% on Wednesday, the biggest one-day decline since Nov. 16, according to Dow Jones Markets data.
What’s driving the markets?
US bond markets were closed for the Thanksgiving holiday on Thursday, and will close early on Friday, with trade group Sifma calling for a 2 p.m. Closed to fixed income markets.
But Europe filled the void left by the US holiday, with yields on German 10-year bonds jumping on Thursday after a stronger-than-expected preliminary composite purchasing managers’ index for October.
After starting the week at 2.615%, benchmark Bund yields rose 2 basis points to 2.641% on Friday, with US bond yields also rising.
The yield of Climbing Dam was attributed to several factors. German Finance Minister Christian Lindner told reporters on Thursday he would propose a supplementary budget for this year and once again suspend limits on new borrowing. Last week, Germany’s Federal Constitutional Court blocked the government from using €60 billion in unused borrowing capacity from the pandemic for its climate fund.
“The energy crisis that followed the pandemic has been difficult for Germany. The country needs money when it becomes scarce and expensive, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. Data on Friday showed Germany’s economy shrank 0.1% from July to September, confirming earlier projections that the country was likely headed for recession. Ifo Business Survey of November is also out.
Ozkardeskaya said suspending the debt ceiling for the fourth consecutive year indicates that “borrowing in Europe will continue to grow, and the cost of new debt that Europeans will shoulder will be significantly higher than it was a few years ago.”
Elsewhere, several European Central Bank officials signaled higher long-term interest rates in the eurozone. Bundesbank President Joachim Nagel warned against easing monetary policy too early, while Ireland’s central bank governor Gabriel Makhlouf warned consumers could face another hike.
While the US economy appears to be stalling despite the Federal Reserve’s interest rate hikes, Europe is struggling as its own central bank appears unwilling to stop, analysts say.
Apart from the S&P flash US services and manufacturing purchasing managers’ indices due at 9:45 am on Friday, the data calendar is quiet. Next week investors will get the Fed’s favorite inflation gauge, the personal-consumption expenditures index.
The 10-year Treasury yield has fallen nearly 46 basis points so far in November and was trading at a two-month low of 4.4% before the Thanksgiving holiday, on hopes that signs of easing inflation mean Fed hikes will be around the corner. It is over.
Markets were pricing in a 99.5% probability that the Fed would leave interest rates unchanged at a range of 5.25% to 5.50% after its next two meetings on Dec. 13 and Jan. 31.