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Bond Report: Treasury yields rise as investors weigh mixed economic data

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Treasury yields moved higher early Friday, with 2- and 10-year yields extending a rise off roughly four-month lows, as investors weighed mixed signals on the economy.

What yields are doing

The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.168%

rose 5 basis points to 4.173%. Yields and debt prices move opposite each other.

The 10-year Treasury note
TMUBMUSD10Y,
3.436%

yielded 3.438%, up 3.7 basis points.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.598%

was up 4.2 basis points at 3.608%.

What’s driving the market

Yields on 2- and 10-year bonds ended the U.S. session on Wednesday at their lowest since September. Both rose on Thursday, but yields remain on track for a weekly decline.

Investors have weighed a mixed bag of economic data, including figures that have pointed to continued weakness in the manufacturing sector, a larger-than-expected fall in U.S. retail sales and a further decline in the producer price index. A fall Thursday in weekly U.S. jobless claims pointed to continued strength in the jobs market.

Federal Reserve officials, meanwhile, have largely pressed the case for lifting the fed-funds rate — which stands at 4.25% to 4.5% — above 5% and leaving it there. Market pricing, meanwhile, still indicates expectations for a lower peak rate and the potential for a cut in rates before year-end.

Data for Friday will include existing home sales at 10 a.m. Eastern Time. Philadelphia Federal Reserve Bank President Patrick Harker and Fed Gov. Christopher Waller were due to speak.

What analysts say

The direction in trends of economic and inflation surprise indexes in the U.S. points to lower U.S. Treasury yields, said economists at UniCredit Bank, in a Friday note.

“However, momentum in USTs (U.S. Treasurys) has also been too extreme, in our view. Right now, three rate cuts are already priced in over the second half of the year and the peak rate has already been scaled down by 25bp,” they wrote. “This would imply that by the end of the year, the key rate level will be unchanged from now at 4.375% (midpoint).”

To fulfill such “ambitious hopes” compared to the Fed’s so-called dot plot forecast, which sees the fed-funds rate at 5.125% at the end of the year, “would require a continuous and probably increasing string of negative growth and inflation surprises over the next few months,” they said.

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