US Treasury yields rose on Friday on optimism that Greek and European negotiators will reach a deal over the terms of Greece's bailout, and after better-than-expected growth in Germany's economy reduced demand for safe haven debt. Greece agreed on Thursday to talk to its creditors about the way out of its hated international bailout in a political climbdown that could prevent its new leftist-led government running out of money as early as next month.
"Greece continues to hang in the balance, it sounds like the talks have been a little bit more constructive," said Sean Murphy, a Treasuries trader at Societe Generale in New York. Germany also grew by a much stronger than expected 0.7 percent in the fourth quarter of 2014, with domestic demand lifting Europe's largest economy out of its mid-year lull to take growth for the whole year to 1.6 percent and raise hopes of a strong 2015.
That news sent German government debt yields higher, which also helped push Treasury yields up. "We had a rebound in European rates that we're following," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee. Benchmark 10-year notes were last down 6/32 in price to yield 2.01 percent, up from 1.99 percent late on Thursday. Treasury yields have increased since US data last Friday showed solid job growth in January and a rebound in wages, boosting expectations that the Federal Reserve may increase interest rates in the coming months.
The selloff paused on Thursday, however, after a new report showed that US consumer spending barely rose in January, suggesting the economy started the first quarter on a softer note. An unexpected drop in US consumer sentiment on Friday added to worries about slowing growth, causing 30-year bonds to add to their price losses and the Treasury yield curve to steepen.
Some investors have been expecting the yield curve to flatten as short and intermediate-debt yields rise on the prospect of nearing rate hikes, while longer-dated bonds are supported by demand for higher yielding assets and a shortage of supply. The next large focus for the market will be the release next Wednesday of the minutes from the Fed's January meeting. Fed Chair Janet Yellen will also testify before the US Senate Banking Committee on February 24. The market will be closed on Monday for the Presidents Day holiday.
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