Hawkish Federal Reserve officials have hurt Treasury yields in recent days, however short-term rates may reflect over optimistic assumptions of a rate increase given signs US economic growth is slowing. Data including consumer confidence and trade balance figures have softened in recent weeks even as some Fed officials, fearing rising inflation, appear more aggressive.
Many economists, meanwhile, have been revising down their growth estimates. Goldman Sachs also said on Friday that "recent data have increased the downside risk to our three-and-a-half percent (annualised) estimate for Q1 GDP growth." With risks that economic momentum will continue to slow, and expectations the Fed will need to tread carefully so as not to stifle economic improvement, some see the front end of the Treasury curve reflecting too much optimism over higher rates.
One-year Treasury yields have risen to 0.29, from 0.21 percent on March 16. Two-year yields have jumped to 0.82 percent from 0.56 percent in the same period. The recent decline in economic momentum in some ways mirrors that seen in 2010, when the economy looked buoyant in the first quarter only to then decline to the point where the Fed launched its second quantitative easing program.
The Fed held $1.31 trillion in Treasuries in the week ended March 24. Fears over a hawkish Fed, combined with a tepid $35 billion five-year note auction and rising stocks sent Treasuries prices lower across the curve on Tuesday. The back up in yields, however, may help a $29 billion sale of new seven-year notes on Wednesday, traders said.
Seven-year notes last traded down 10/32 in price to yield 2.90 percent, up from 2.85 percent on Monday. The yields have risen for eight consecutive sessions since March 16 from 2.53 percent. Five-year Treasuries were last down 8/32 in price to yield 2.23 percent, up from 2.18 percent on Monday. Benchmark ten-year notes fell 13/32 in price to yield 3.48 percent, up from 3.44 percent late on Monday.