US Treasury yields rose on Friday, with two-year yields reaching a near nine-year high, as investors reduced bond holdings on worries about more inflation and federal borrowing after the US Senate passed a budget resolution. The Senate's move late Thursday raised expectations the Republican-controlled Congress and US President Donald Trump would be able to enact their tax-cut package, which would widen the federal deficit by up to $1.5 trillion over the next decade.
Fears over further federal borrowing to fund the tax cuts and a possible pickup in inflation as a result reversed a late Thursday rally in the bond market in reaction to a report that Trump is leaning towards a Federal Reserve chair nominee who is seen as unlikely to change the Fed's current easy policy stance. "The mood seems to more constructive about tax reform, but it depends on what's in the deal," said Chris Iggo, chief investment officer of fixed income at AXA Investment Managers in London.
The yield on 10-year Treasury notes reached a two-week peak of 2.392 percent. It was 2.383 percent, up 6 basis points for its biggest weekly rise in five weeks, according to Reuters data. The two-year yield touched a near nine-year peak at 1.580 percent on bets for faster economic growth due to the tax-cut plan, allowing the Fed to raise interest rates further.
The rise in yields was capped by worries about the negotiation between Britain and European Union officials for the former to leave the trade bloc. Anxiety about the Spanish government's handling of Catalonia's push to secede also limited some selling in safe-haven US government debt. The bond market has experienced some volatility in the past 24 hours due to reports about Trump's possible preference to head the Federal Reserve.
Traders have been speculating on Trump's possible picks for Fed chief: Fed Governor Jerome Powell; current Fed Chair Janet Yellen; his chief economic adviser, Gary Cohn; former Fed Governor Kevin Warsh and Stanford University economist John Taylor.