Investors were in a risk-averse mood on Friday, driving down yields on both sides of the Atlantic one day after global central banks delivered a spate of interest-rate increases with expectations of more to come.
What yields are doing
-
The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.745%
slipped 2.1 basis points to 4.776% from 4.797% on Thursday. Thursday’s level was the highest since March 9, based on 3 p.m. figures from Dow Jones Market Data. -
The 10-year Treasury note yield
TMUBMUSD10Y,
3.743%
fell 5.8 basis points to 3.739% from 3.797% on Thursday. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.820%
fell 5.4 basis points to 3.818% from 3.872% on Thursday.
Market drivers
Investors have been absorbing a flurry of interest-rate hikes by central bankers in Europe on Thursday, notably a bigger-than-expected, 50-basis-point hike from the Bank of England. Concern is rising that central banks could push too hard in their inflation fight and tip economies into recession.
Data released on Friday showed a loss of momentum for business activity in the eurozone for June, according to a purchasing managers’ survey. Earlier this month, the European Central Bank vowed to keep pressing on with interest-rate hikes. And the Federal Reserve is also expected to increase rates twice more this year.
Jumpy investors drove up the dollar
DXY,
which rose 0.5% on Friday based on the ICE U.S. Dollar Index. The yield on the 10-year gilt
TMBMKGB-10Y,
slid 5 basis points to 4.321% and German bunds
TMBMKDE-10Y,
dropped 14.6 basis points to 2.355%.
In the U.S. on Friday, the S&P flash U.S. service sector purchasing managers index fell to 54.1 in June from 54.9 in the prior month, while the flash manufacturing PMI dropped to 46.3 from 48.4.
Investors took note of comments from U.S. Treasury Secretary Janet Yellen, who said in a Bloomberg interview published Friday that recession risks have faded “because look at the resilience of the labor market, and inflation is coming down.”
What analysts are saying
“After bigger than expected rate hikes in the UK and Norway yesterday, the markets are nervous about upside rate surprises, and that was helping the dollar overnight, even before we saw the European PMI data,” said Kit Juckes, chief FX strategist at Societe Generale.
“U.S. resilience is clear, but saying a recession looks unlikely is only encouraging if inflation can be brought down without one,” Juckes wrote in a note to clients.
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