US Treasury yields slipped on Friday as the $15.3 trillion bond sector recorded its worst month since January due to rising government debt supply and sturdy economic data that have enabled the Federal Reserve to keep raising interest rates. Government bonds have produced a loss of nearly 0.95 percent through Thursday, marking the steepest monthly decline since January, according to an index compiled by Bloomberg and Barclays.
Growing Treasury issuance in a bid to fund a widening fiscal deficit likely reduced the appeal of buying this week's government debt issues. The Treasury Department sold a combined $107 billion in two-year, five-year and seven-year notes to soft investor demand. The bond market as a whole has continued to lag Wall Street where shares have been buoyed by healthy profit growth, stemming from last year's tax cuts and decent consumer demand.
"There's nothing to get too excited about fixed income," said Brian Rehling, co-head of global fixed income strategy at Wells Fargo Investment Institute in St. Louis. "The good news is that US equities have done pretty well." The S&P 500 index has eked out a near 0.6 percent gain this month amid U.S-China trade tensions.
Bond yields dipped on the day as investors bought longer-dated debt to rebalance their portfolios before the end of the month. Worries about Italy's fiscal woes spurred safe-haven demand for German Bunds and US Treasuries, analysts said. Italy's new government proposed a 2019 budget with a deficit three times bigger than the previous administration's target, setting up a clash with the European Commission.
This touched off a sell-off in Italian sovereign debt, sending local 10-year yield over a quarter point higher to 3.719 percent. Benchmark 10-year Treasury yields were marginally lower at 3.056 percent. On Tuesday, they reached 3.113 percent, the highest since May, Reuters data showed.
Their German counterpart fell to 0.474 percent, down over 5 basis points, which was its biggest one-day fall in almost a month. Bond traders brushed off Friday's economic data which came in mixed. The latest figures signalled solid consumer spending and sentiment, but a moderation in inflation.
On Wednesday, the Federal Reserve signalled it remained on its gradual rate-hike path based on its view of further economic growth. Interest rates futures implied traders priced in nearly an 80 percent chance the US central bank would raise key overnight borrowing costs by a quarter point at its Dec. 18-19 meeting, CME Group's FedWatch program showed.
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