(Bloomberg) — Treasuries slipped at the end of the week as still-elevated energy costs stoked concern about inflation and backed expectations for further Federal Reserve interest-rate increases.
The declines pushed yields across maturities closer to their recent peaks after strong auctions this week spurred a relief rally. Two-year yields — which are most sensitive to the Fed’s path — rose four basis points to 4.79% on Friday, while 10-year yields were up to 5.25%.
“The market is digesting a very volatile week,” said Brij Khurana, portfolio manager at Wellington Management. With yields lingering off their recent peaks, “prices tend to stabilize before moving one way or the other.”
Investors have been selling global long-dated debt for weeks as concern tied to rising inflation from the war in Iran has prompted bets on a hawkish turn by major central banks. Worries over ballooning deficits have added to the bearish sentiment, sending 30-year Treasury yields earlier this week to levels unseen since 2002.
Yields declined on Thursday, however, as auctions of 10- and 30-year Treasuries were met with strong demand from investors. Brent crude fluctuated around $104 a barrel at the end of the week after President Donald Trump vowed to hold off on further attacking Iran until after the US midterms and said Russian leader Vladimir Putin agreed to release diesel supplies into the global market.
To Padhraic Garvey, head of research for the Americas at ING Groep NV, it’s too early to call the end of the yield surge.
“This marketplace is looking for an excuse to sell as opposed to buy,” he said. “It doesn’t feel just yet that we have enough validation here for yields to get aggressively bought.”
The upcoming US inflation report on Wednesday stands to offer investors the next major clues on the Fed’s path. The central bank boosted rates for the first time since 2023 last month, though traders are pricing in just a 20% chance of another move in October. A hike is fully priced in for the December gathering.
“My concern is next week,” said Marc Chandler, chief market strategist at Bannockburn. “A firm CPI reading will likely lift expectations for Fed policy, which in turn could lift long-term rates.”
US cash bond markets will be closed Monday for a holiday.
–With assistance from Ye Xie.
(Updates prices in second paragraph and adds diesel news in fifth paragraph.)
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