By Treasury yields continued to rise Monday, with the 10-year rate topping 2.7%, as investors prepared for a busy week of economic data, including the latest reading on U.S. inflation.
What are yields doing?
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.769%
rose to 2.77%, compared with 2.713% at 3 p.m. Eastern on Friday. Yields and debt prices move opposite each other.
The 2-year Treasury note yielded
TMUBMUSD02Y,
2.495%
was at 2.504% versus 2.518% Friday afternoon.
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.817%
stood at 2.819%, up from 2.745% late Friday.
Based on 3 p.m. levels Friday, the yields on the 10- and 2-year notes were the highest since early March 2019, while the 30-year yield was the highest since May 24, 2019.
What’s driving the market?
Yields continued to rise on Monday as investors digested remarks by Federal Reserve officials and minutes of the central bank’s policy meeting, which reinforced expectations for a half-point rise in the fed-funds rate at the next meeting in May. The minutes also laid out a plan that would see the Fed begin unwinding its balance sheet as early as next month — though no final decision had been made — at a pace that would eventually reach $95 billion a month as the central bank attempts to rein in inflation running at a nearly 40-year high.
Yields rose more quickly for longer-dated Treasurys, with the 10-year rate rising back above the 2-year rate, unwinding a brief inversion of that closely watched measure of the yield curve.
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The March consumer price index is due Tuesday morning, while the producer price index for last month is set for release on Wednesday. Thursday brings the University of Michigan preliminary April consumer sentiment readings, including its gauge of five-year inflation expectations.
What do analysts say?
“We’re taking a more balanced approach to portfolio construction currently than we did a few months ago, when we were more constructive,” said Bill Merz, head of fixed income research at U.S. Bank Wealth Management.
“The likelihood of a recession relates to a host of factors, with one being whether inflation begins cooling on its own in the near term, which would reduce the magnitude and speed of Fed rate hikes and increase odds of a soft landing. That could happen for many reasons but we simply aren’t seeing evidence of it yet,” Merz said in an email to MarketWatch. “Factors like lower market liquidity from Fed balance sheet runoff, tighter monetary policy from Fed rate hikes, and what appears to be decelerating corporate revenue and earnings growth, and decelerating economic growth indicate we must respect a wide range of outcomes ahead.”
