U.S. Treasury yields traded lower on Friday as the University of Michigan’s gauge of consumer sentiment plunged, but they still posted their biggest two-week gains in months.
What are yields doing?
The 10-year Treasury note
yields 1.297%, versus 1.366% at 3 p.m. Eastern Time on Thursday.
The 30-year bond
was yielding 1.948%, compared with 2.013% a day ago.
The 2-year Treasury note rate
was at 0.215%, from 0.227% on Thursday.
The 2- and 10-year yields still posted their largest two-week rise since the week ended June 25, based on 3 p.m. levels, according to Dow Jones Market Data. Meanwhile, the 30-year rate had its biggest two-week jump since the week ended May 21.
What’s driving the market?
The University of Michigan’s gauge of consumer sentiment plunged to a preliminary August reading of 70.2 from a final July reading of 81.2 — missing the expectations of economists polled by the Wall Street Journal. A barometer of their expectations also fell, to 65.2 from 79 in July.
Meanwhile, other data released Friday shows that a rise in U.S. import prices cooled off in July — producing the smallest gain since November.
The moves in yields came after two somewhat conflicting inflation readings earlier this week. The July producer-price index, a measure of the prices businesses receive for their goods and services, published Thursday, rose for the sixth month in a row. Meanwhile on a report on Wednesday of the July consumer price index suggested pricing pressures may be moderating.
The moves higher in yields on the long end of the curve earlier this week suggested that fixed-income investors were getting acclimated to the idea of the Federal Reserve announcing an end to its monthly purchases of $120 billion in Treasurys and mortgage-backed securities later this year or early next year.
Most economists expect the Fed to soon announce plans to pull back on its monetary accommodation, introduced to support markets and the economy during the pandemic in the past year, according to a Reuters poll.
The Fed is seen as raising the topic of tapering its asset purchases during the three-day Jackson Hole Economic Symposium, which starts on Aug. 26.
What analysts are saying
The plunge in the University of Michigan consumer confidence “suggests the latest wave of virus cases driven by the delta variant could be a bigger drag on the economy than we had thought,” Andrew Hunter of Capital Economics wrote in a note. “With the fiscal stimulus boost now well passed and surging prices starting to hit real incomes, the drop in confidence is another reason to expect consumption growth to slow sharply over the coming months.”
U.S. consumers’ dashed hopes for an end to the pandemic are at risk of morphing more broadly into higher inflation expectations over the next year, and that’s the biggest risk facing financial markets through mid-2022, according to Jefferies LLC economist Thomas Simons. “The longer the economy and society remain distorted or abnormal relative to what we expected pre-Covid, the longer and higher the inflation environment can persist,” he said via phone Friday.