US Treasuries prices fell for an eighth consecutive day on Friday and yields touched four-month highs as optimism the economic recovery was gaining momentum undermined the safe-haven allure of US government debt. Investors have been selling Treasuries and turning to riskier assets like stocks, with the S&P 500 on Thursday finishing above 1,400 for the first time since 2008.
----- Benchmark yields in biggest weekly rise since July
----- 10-year note yields touches highest in over four months
Treasury debt yields have also been pushed higher by expectations the Federal Reserve was not likely to fire up another round of monetary stimulus in the next couple of months. The outlook for stronger growth in the US economy and reassuring stress-test results for most US banks encouraged investors to dump low-yielding government bonds. Fear of contagion from Europe's debt crisis has also receded somewhat following a bailout deal for Greece.
"The improved growth outlook for the US based on the better (economic) data, supported by the Fed holding off on further quantitative easing, and rising inflation pressures - these things go hand in hand and have served the demand for risk and have taken a toll on the Treasuries market," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.
Benchmark 10-year Treasury notes were on track for the biggest weekly rise in yield since early July, trading on Friday 5/32 lower in price to yield 2.30 percent from 2.28 percent late Thursday. The yields have risen over 25 basis points in a week, and touched 2.36 percent on Friday, which was the highest since late October. Longer-dated securities have borne the brunt of the selling, with 30-year bonds set for the biggest weekly rise in yield since October 2010. Bonds on Friday were yielding 3.41 percent, well up from 3.19 percent a week ago.
Selling was tempered on Friday however, as investors mulled whether there was much room for yields to rise further after the week's selling broke trade ranges that had held since early November. "Given how much they have run up without an equivalently dramatic new change in the economic backdrop, yields have probably moved up a little bit too high," said James Sarni, managing principal at Payden & Rygel, with approximately $60 billion in fixed-income assets.
"The market is still trying to digest what the Fed had to say," said Sarni, referring to the Federal Reserve's most recent policy statement, released on Tuesday, which sparked a fresh run-up in Treasury yields. "Treasuries are trying to find the new resting level in light of the fact that some of the expectations for QE3 (a third round of unconventional monetary easing) continue to be run out of the market," he said. "Yields will likely drift a bit to try to find some support," Sarni said.
Data released on Friday showed a smaller-than-forecast rise of just 0.1 percent in consumer prices excluding food and energy items, and a 0.4 percent increase with those items included. Overall inflation "is running a little bit higher than what the Fed's expectations were at the beginning of this year, but it's certainly not high enough to be alarmed about - especially when you're looking at the core index" which excludes volatile food and energy items, Sarni said.