Treasury yields struggled for direction on Friday, but still looked set to consolidate a sharp weeklong climb as investors circle around the consensus that three additional rate hikes were in the offing this year.
How are Treasurys doing?
The benchmark 10-year Treasury note yield TMUBMUSD10Y, +0.87% was up 0.5 basis point to 2.919%, extending a climb that has taken the note up 9.1 basis points from 2.828% and the end of last week. The 2-year note yield TMUBMUSD02Y, +0.37% was down 0.4 basis point to 2.432%, while the 30-year bond yield TMUBMUSD30Y, +0.90% rose 0.7 basis point to 3.112%.
The spread between the two-year note yield and the 10-year note yield, a widely-watched measure of the yield curve, widened to 49 basis points, or 0.49 percentage point, from 41 basis points on Tuesday.
Bond prices fall as yields rise.
What’s driving the market?
In a week full of speeches by members of the Federal Reserve’s rate-setting body, investors have gradually swung to the view that the central bank would raise rates three additional times this year. The minutes from the March Fed policy meeting highlighted the central bank’s willingness to tighten monetary policy, but before this week, a few investors were still unsure about how much of that view was shared among all the members of the FOMC.
New York Fed President William Dudley said the central bank could still pass several rate hikes before monetary policy started to become tight, while Cleveland Fed President Loretta Mester said the Fed should keep raising rates to prevent the economy from overheating.
Chicago Fed President Charles Evans will speak on economic conditions and monetary policy at 9:40 a.m. Eastern. Soon after, San Francisco Fed President John Williams will talk at 11:15 a.m.
Traders on the fed-fund futures market see a 36% chance of a total of four hikes in 2018, compared with 24.5% on April. 11.
The hawkish sentiment has contributed to the flattening of the yield curve in the past few weeks by pushing down long-dated yields and pulling up short-dated yields. But this week the curve steepened as traders engaged in some profit-taking of a trade that has proved highly profitable since last year.
See: Watch out as even Fed doves fret about markets living in La-La Land
Read: Inflation expectations reach the highest in more than three years
What are market participants saying?
“The main theme surely is the flattening curve and all that implies. Behind that has to be ongoing Fedspeak that has only enhanced prospects of three more hikes this year,” said David Ader, chief macro strategist at Informa Intelligence.
“Given the position bias for flattening, periodic steepening corrections should be expected but don’t signal a change in view, but rather a case of ringing the register after which there will attempts to justify the price action with something more cerebral until we revert to flattening.”
What are other assets doing?
The U.K. 10-year government bond yield TMBMKGB-10Y, -0.95% was down 1.9 basis points, according to Tradeweb data, while the German 10-year bond yield TMBMKDE-10Y, +0.38% was unchanged at 0.594%.