Year-end demand helped US Treasuries prices end the year stronger on Friday, before a heavy week of data, though volumes were light before Monday's New Year's Day holiday. Treasuries are typically in demand at the end of the month, quarter and year as investors rebalance their portfolios and extend their bond duration.
Declining stock markets also boosted demand for the safe-haven debt. The economic calendar was light this week, though data next week will include numerous manufacturing and service sector releases in addition to the employment report for December.
The data and any news around efforts by the Trump administration to boost growth will be evaluated for their outlook for the economy and how many interest rate increases are likely during the year. "Next week will be very busy," analysts at NatWest Markets wrote in a note on Friday. "There is a ton of top tier data out as well as the potential for political news if Trump kicks the year off with a strong drive for infrastructure spending."
Friday's gains came after the Treasury Department this week sold $88 billion in new short and intermediate-dated supply to mostly below average demand. Short- and intermediate-dated notes, which are highly sensitive to interest rate increases, have underperformed this year as investors priced in expectations of improving economic momentum.
Five-year note yields posted their largest annual increase since 2013 with a 15 percent rise to 2.21 percent. Two-year note yields have risen 58 percent during the year, their largest increase since 2014, to 1.89 percent. The yield curve between two-year and 10-year notes fell to 50 basis points on Wednesday, the flattest level since Oct. 2007.
The Federal Reserve has indicated that an additional three increases are likely next year, though interest rate futures traders are pricing in only two. The US central bank will release minutes from its December meeting, when it raised rates for the third time this year, on Wednesday.
An uptick in Treasury supply, which is expected to initially be concentrated in bills and shorter-dated notes, is also a key focus for investors as the US Treasury makes up for declining bond purchases by the Fed. The bond market closed early on Friday at 2 pm EST (1900 GMT) and will be closed on Monday for the New Year's Day holiday.
Comments
Comments are closed.