U.S. 10-Year Treasury yields touched 4.5% on Friday, up 55 basis points over the week, marking their biggest weekly gain in three years, owing to substantial tariff-related uncertainties.
What Happened: The U.S. 10-year Treasuries had a volatile day on Friday, with yields reaching as high as 4.50%, before ending at 4.46%. This has been attributed to the unwinding of hedge fund basis trades, alongside substantial selling by foreign investors throughout the week.
Yields continued to spike despite a weaker-than-expected inflation report for the second month in a row, which experts like Kathy Jones, the chief fixed income strategist at the Schwab Center For Financial Research, says is because the “market attention has shifted toward policy uncertainty and broader macro risks.”
The spike comes just two days after the Fed’s well-received $39 billion auction in benchmark 10-year notes, which several analysts said was “much better than expected” with the bid-to-cover ratio, which is another gauge for demand, coming in at 2.67, compared to the average of 2.53.
Much of the bidding also came from central banks, at 87.9%, up from 67.4% last month, leading analysts to conclude that investors were demanding a premium, according to a report by Reuters.
The managing director of NFM Lending, Greg Sher told CNET last week that there is widespread fear that tariffs will stoke more inflation, so investors “demand higher yields to compensate for the reduced purchasing power of future bond payments.”
Why It Matters: With rising bond yields amid a falling equity market, investors have lost a significant safe haven during times of crisis, which has since prompted a rally in gold, as well as several gold mining companies throughout the past week.
Peter Oppenheimer, a strategist at Goldman Sachs Group, however, believes that yields become a problem for equities around 5%, as it is at this point that “correlation with bond yields is no longer decisively positive,” reported by CNBC.
Price Action: So far, this month, the SPDR S&P 500 ETF Trust SPY and the Invesco QQQ Trust QQQ that track the Nasdaq are down 4.8% and 3.8%, respectively. At the same time, the U.S. 3-year, 10-year, and 30-year treasury yields have increased 13, 31, and 33 basis points, respectively.
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