US Treasury prices rise modestly in low liquidity trading session

NEW YORK: US Treasury prices rose marginally on Friday amid low liquidity after falling early in the day in reaction to a sell-off in German bonds.

Treasury yields, which move inversely to prices, had fallen on Wednesday after the US Federal Reserve’s November meeting minutes showed a majority of policymakers agreed it would likely soon be appropriate to slow the pace of interest rate hikes as the central bank keeps fighting decades-high inflation.

But on Thursday, a holiday in the United States, European Central Bank board member Isabel Schnabel pushed back against calls from many of her colleagues for smaller rate increases by the ECB, saying this could hamper efforts to bring down inflation.

German bonds sold off on Friday, with German 10-year bond yields, seen as a benchmark for the EU currency bloc, rising about 12 basis points.

This spilled over on a global basis, said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management. “Europe continues to have a huge influence on the US Treasury bond market,” he said.

US Treasury yields climbed in early trade on Friday but ended up lower, with benchmark 10-year yields down by about two basis points to 3.683%, the lowest since early October, and two-year note yields down by nearly three bps to 4.454%.

“It’s been a very choppy day in the market so I’m taking a lot of what’s happening with a pinch of salt,” said Craig Erlam, senior market analyst at OANDA, adding low liquidity due to the US Thanksgiving holiday contributed to extra volatility.

Meanwhile, recession concerns continued to weigh on markets.

Wednesday’s post-Fed US bond market moves had seen yields on 10-year notes drop to a huge 79 basis-point deficit relative to two-year yields, a curve inversion that had not been seen since the dot-com bust of 2000.

On Friday, the curve that compares two-year and 10-year yields - seen by many as a harbinger of an upcoming economic contraction when inverted - remained deeply in negative territory, though slightly steeper at -78 basis points.

Releases of jobs data and the personal consumption expenditures price index next week may give investors some clues on the direction of inflation and monetary policy.

Fed Chair Jerome Powell is also scheduled to speak about the economic outlook and the labor market at an event on Wednesday.