The US 10-year Treasury yield fell slightly on Friday after rising above 1.6% in the previous session.
The benchmark 10-year Treasury note yield fell to 1.46% around 2:00 p.m. ET. The yield on the 30-year government bond fell to 2.19%. The returns move inversely to the prices.
On Thursday, the 10-year yield rose more than 16 basis points to 1.614%, the highest level since February 2020 and by more than half a percentage point at the end of January.
The move unsettled investors and put the stock markets under pressure, with the Nasdaq suffering its worst one-day loss since October. Shares fell again on Friday, with the Dow Jones Industrial Average slipping more than 200 points.
The rise in 10-year return, which serves as the benchmark for mortgage rates and auto loans, was driven by expectations of an improvement in economic conditions with coronavirus vaccine adoption, as well as fears of higher inflation.
“Greater optimism about the economic outlook has caused US yields to surpass the widely observed 1.5% threshold due to real interest rates,” Barclays equity strategist Emmanuel Cau told clients. “Ultimately, rising growth and inflation expectations are bad for bond yields and good for stocks. This means that the positive return / stock correlation of the past few months is unlikely to diminish as long as central banks err on the side of caution and the recovery in real rates. In our view, drops due to the volatility of the bond market should therefore be bought in. “
The U.S. House of Representatives is expected to approve the $ 1.9 trillion Covid bailout package by Friday, supporting expectations for an economic recovery.
Wells Fargo strategists, however, said in a statement Thursday that they believe it “has increased the chances that the Fed will have to try to downgrade the latest rate hike”.
Meanwhile, Bank of America’s credit strategist, Hans Mikkelsen, said that since the summer economists have “consistently underestimated economic growth to an extent never seen before.”
“There seems to be a real risk that the Fed will no longer sound cautious and that this transition could lead to wider credit spreads,” he said.
Personal income rose by the largest monthly gain since April 2020, although inflation remained low, the Commerce Department reported on Friday. Personal income rose 10% from a 0.6% increase in December. That was even higher than the Dow Jones estimate of 9.5%.
The consumer spending index, the Federal Reserve’s preferred inflation indicator, rose 0.3% over the month, slightly above expectations of 0.2%. However, it rose only 1.5% year-on-year and was in line with Dow Jones estimates. That number was the same for both the base rate and the core, excluding volatile food and energy prices.
There are no auctions on Friday.
– CNBC’s Patti Domm, Jeff Cox and Bob Pisani contributed to this report.