Fed Speakers Push Treasury Yields Higher

As investors awaited a further set of remarks from Federal Reserve officials and a reading on U.S. consumer confidence on Friday, Treasury yields edged higher on Friday.

How yields are doing

• A couple of hours ago, the yield on the 2-year Treasury note TMUBMUSD02Y, which was 4.502% at 3 p.m. Eastern on Thursday, which marked the highest finish to a North American trading session since Nov. 22, according to Dow Jones Market Data's snapshot of the market. There is a direct correlation between yields and debt prices.
• A 10-year Treasury note yield of TMUBMUSD10Y, 3.697% was 3.706% on Thursday afternoon, up from 3.682% the previous day.
• TMUBMUSD30Y, of the 30-year Treasury note, was yielding 3.778% late on Thursday, up from its previous low of 3.74%.

Market drivers

There has been a rise in Treasury yields this week, mainly due to shorter-dated maturities, as traders have moved closer to the Federal Reserve's projections that the fed-funds rate will top out at 5% and scaled back expectations for rate cuts before the end of the year.

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In the early hours of Friday, the spread between 10-year and 2-year Treasury notes was somewhat less inverted than it had been previously. There was an 80.5 basis point difference between the yield on the 10-year note and the yield on the 2-year note. There was an 82.5 basis points difference between the two spreads at the end of the U.S. session on Thursday.

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A reliable recession indicator is said to be the inversion of that measure of the yield curve, which generally slopes upward. However, some economists and analysts, including the researcher who first popularized the relationship, have questioned its predictive power in the current environment as a result of the inversion.

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As a result of Russia's announcement Friday that it will cut oil production by 500,000 barrels in March, oil futures rose on Friday. On the New York Mercantile Exchange, the New York Mercantile Exchange quoted West Texas Intermediate crude for March delivery CL.1, 1.43% CLH23, 1.45%, the U.S. benchmark crude, up 2.2% to $79.75 per barrel. It is important to note, however, that WTI has fallen by 0.7% so far in 2023, and is down by more than 11% from a year ago.

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There is a sense of gloom in the air as the University of Michigan's reading of consumer confidence for February is due to be released at 10:00 a.m. Eastern Standard Time. A speech by Fed. Gov. Christopher Waller will follow the address by the Philadelphia Fed at 12:30 p.m. The Philadelphia Fed's president will speak at 4 p.m.

What analysts say

It is believed that the U.S. job report released last Friday, which saw 517,000 new jobs added and a drop in unemployment to 3.4%, gave the impression that the global economy may be at a turning point, according to Allan von Mehren, chief analyst at Danske Bank in Copenhagen, in his note on Friday.

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Having said that, the flip side of this is that central banks will have to err on the side of hawkishness for a longer period of time. Over the past week, we have seen more signals from both the ECB and the Fed that more rate hikes will be necessary in order to keep inflation under control - and to keep them down in the long run. The increase in bond yields triggered a rebound in risk assets and metal prices in the middle of the week as a result of this move," he wrote.