US Treasury long-dated yields rose to one-week highs on Friday as investors consolidated positions ahead of next week's government debt auctions and a widely expected interest rate increase by the Federal Reserve. US short-term yields also advanced, with two-year Treasuries touching a four-week peak.
Investors largely shrugged off Thursday's UK election, which resulted in a hung parliament for Britain, as they did scathing congressional testimony by former Federal Bureau of Investigation director James Comey. Comey accused President Donald Trump of firing him to try to undermine the bureau's investigation into possible collusion between his 2016 presidential campaign team and Russia.
Guy Pecho, global macro portfolio manager at Voya Investment Management, said dysfunction in Washington has virtually been priced out. "When the market saw the (Trump) impeachment story and reacted with such intensity, I think that was the height of hysteria around the administration. From there, we're now in a denouement, a sort of post-Trump world where the market can now accept the administration's volatility and vicissitudes without being perturbed."
Treasuries briefly rallied following the UK election, with benchmark 10-year note yields dropping as low as 2.16 percent, but yields have since risen as part of an overall consolidation.
Britain's Conservative Party lost its parliamentary majority in an election debacle days before talks on Britain's EU departure are due to begin. "Our key takeaway from the day's events was that we saw the weakening in Treasuries as largely technical," said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York. He said the sell-off in Treasuries suggested the market was preparing for a crowded US auction calendar next week.
The US Treasury next week will auction 3-, 10- and 30-year debt totaling $56 billion. Ahead of an auction, traders typically sell Treasuries to make way for the new supply of government debt, leading to higher yields. Investors were also anticipating another rate increase by the Fed at the conclusion of a two-day monetary policy meeting on Wednesday.
In late trading, US 10-year Treasuries were last down 3/32, yielding 2.204 percent, compared with 2.194 percent on Thursday. Ten-year yields earlier hit a one-week high of 2.228 percent. US 30-year bonds slipped 2/32 to yield 2.857 percent, up from Thursday's 2.855 percent. Earlier in the session, 30-year yields rose to one-week peaks of 2.883 percent. On the front end, US two-year yields were at 1.338 percent, rising from 1.322 percent late Thursday after reaching a four-week high of 1.351 percent.