Treasury yields finished mostly higher on Friday, handing the policy-sensitive 2-year rate its biggest weekly rise in almost eight months, as traders assessed the latest remarks made by Federal Reserve Chairman Jerome Powell.
Meanwhile, the 2-month T-bill rate soared amid news of a delay in negotiating a debt-ceiling deal in Washington.
What happened
- The 2-month T-bill rate rose to 5.237%, up 21.9 basis points from Thursday’s close of 5.018%, according to 3 p.m. Eastern time data from Tradeweb.
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.268% rose 1.8 basis points to 4.287% from 4.269% on Thursday. It is up 38.8 basis points over the last seven trading sessions, according to 3 p.m. figures from Dow Jones Market Data. For the week, the yield rose 28.5 basis points, its largest weekly gain since the period that ended on Sept. 23. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.683% was up 4.3 basis points at 3.69% from 3.647% as of Thursday afternoon. It rose 22.9 basis points this week, the largest weekly rise since the period that ended on Dec. 23. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.929% rose 4.5 basis points to 3.946% from 3.901% on Thursday. Friday’s level is the highest since March 2. For the week, the 30-year yield rose 17 basis points, the largest weekly rise since the period that ended on Feb. 10.
What drove markets
Financial markets reacted to a mix of comments on Friday from Fed chair Powell and U.S. Treasury Secretary Janet Yellen, as well as reports that debt-ceiling negotiations had stalled in Washington.
While Republican Rep. Garret Graves of Louisiana, a key ally of House Speaker Kevin McCarthy, described the talks as being at “a pause,” CNBC reported that Republicans had walked out. An unnamed White House official said that “there are real differences between the parties on budget issues and talks will be difficult.”
The debt-ceiling issue overrode remarks made by Powell, who said on Friday that the benchmark interest-rate target range might not need to rise as much as it otherwise would because banks are tightening credit. He also indicated that Fed officials haven’t made any decisions about whether more rate hikes will be appropriate, and said that progress in bringing down inflation will be slow. EY-Parthenon Chief Economist Gregory Daco interpreted Powell’s comments as implying a “hawkish hold” — in other words, a pause accompanied by the need to keep an eye on inflation.
Markets reduced the likelihood of a June Fed rate hike to 14.5% from 35.6% on Thursday, according to the CME FedWatch Tool. Fed funds futures traders now see an 85.5% likelihood that the Fed will keep borrowing costs between 5% and 5.25% next month.
Meanwhile, Yellen told bank chief executives that more mergers may be necessary, according to a report from CNN. Her comments raised the prospect that more regional banks would have to be bought by larger too-big-to-fail firms — which caused the KBW Regional Bank Index
KRX,
What analysts are saying
“In the week ahead, investors in the U.S. rates market will continue following the progress of a debt-ceiling deal as the Treasury Department aspires to avoid missing a payment,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.
“The Fed’s biggest challenge this year won’t be executing another quarter-point increase in policy rates to a higher terminal [rate]. Rather it will be mustering the conviction to hold the endpoint into 2024 as monetary policy makers have been signaling,” they said in a note.
