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Bond Report: 10-year Treasury yield edges up but looking at weekly skid ahead of data

Yields for U.S. government debt were steady on Friday but set for a weekly drop after Federal Reserve Chairman Jerome this week reiterated the central bank’s view that rising inflation is likely to be transitory and that tapering of asset-purchases, including government debt, isn’t imminent.

A report on June retail sales due at 8:30 a.m. Eastern Time will provide fresh insights about the trajectory of the U.S. economy’s COVID-19 recovery.

How Treasurys are performing
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.315%

    yields 1.298%, compared with 1.297% at 3 p.m. ET on Thursday.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    1.942%

    was yielding 1.919%, versus 1.920% a day ago.
  • The 2-year Treasury note rate
    TMUBMUSD02Y,
    0.237%

    was at 0.225%, compared with 0.223% Thursday.

For the week, the 10-year Treasury note is down 5.6 basis points, the 30-year Treasury was off 6 basis points for the week, while the 2-year was looking at a weekly climb of 1 basis point.

Fixed-income drivers

Powell completed two days of testimony and his comments had the effect of driving bond yields lower for the week.

Buying of government debt is being underpinned by weakening assumptions about the path for U.S. growth as Americans attempt to claw back from the worst pandemic in generations, analysts said.

The Fed chairman emphasized that the outlook for the economy remains uncertain but that the central bank is betting that inflation will be a passing phase, some analysts noted.

A number of market participants have voiced views at odds with the Fed’s transitory assumptions and believe that asset purchases of $120 billion a month, including Treasurys and mortgage-backed securities, must end soon to stave off out-of-control inflation.

Powell has said that the Fed is in no rush to taper those purchases, known as quantitative easing, or QE, and that has supported some of the recent yield moves lower.

“We’ve said that we would begin to reduce our asset purchases when we feel that the economy has achieved substantial further progress measured from last December,” Powell told Senate lawmakers on Thursday. “We’re in active consideration of that now.”

U.S. Treasury Secretary Janet Yellen told CNBC during an interview on Thursday that she expects the U.S. economy will see “several more months of rapid inflation.”

Meanwhile, the Germany’s 10-year yield
TMBMKDE-10Y,
-0.342%

fell to a three-month low ahead of next week’s European Central Bank gathering.

In other data, the University of Michigan releases a preliminary report on consumer sentiment and inflation expectations for July at 10 a.m.

What strategists and traders say

“We expect June retail sales fell by 0.8% [month-over-month]. In May, retail sales fell 1.3% after very strong growth in the prior two months that saw sales rise 18% above pre-COVID levels,” wrote analysts at UniCredit in a daily note.

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