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10-year yield surges the most in a week since 2016

The yield on the benchmark 10-year Treasury note was poised for its largest weekly rally since November 2016 as investors checked prior concerns that the U.S. was careening toward an economic downturn.

The yield on the benchmark 10-year Treasury note was higher to 1.84%, while the yield on the 30-year Treasury bond was also higher at 2.31% on Friday. The moves in the week’s final day of trading bring the 10-year yield’s week-to-date climb to over 30 basis points, its largest such move since November 2016.

The 30-year bond yield is up nearly 32 basis points for the week, also its largest increase since autumn 2016. Bond yields rise as prices fall.

Traders said that a reassessment of August’s angst over the direction of the American economy and calmer trade rhetoric between the U.S. and China help spur the week’s marked selling. Last month’s inverted yield curve, new tariffs between the U.S. and China and grim diagnoses for GDP growth combined to fuel a pivot into safer assets like U.S. debt.

But that those trends all appeared to abate in the second full week of September, especially in light of better-than-expected retail data, said Kevin Giddis, head of fixed income capital markets at Raymond James.

“Even though growth around the world is struggling, even though the tariffs impacted the U.S. and Chinese economies, the U.S. economy seems to have shrugged a lot of it off, without the negative effect of inflation,” Giddis said in a note.

“It seems clear that we got to 1.45% on the 10-year note from an abundance of fear about the effect of tariffs, and a longer term view of the effects on the U.S. economy,” he added. “What we know now is that it just hasn’t happened, and that each side of the trade dispute seems to be looking to cut a deal, even a watered down one.”

On Thursday, the U.S. welcomed China’s renewed purchases of American farm goods, with Trump saying it was expected Beijing would purchase “large amounts” of agricultural products. The president also said Thursday that he would consider a temporary trade deal with the Chinese though he’d prefer to hash out a permanent accord.

His comments came after his decision to delay increasing tariffs on $250 billion worth of Chinese goods from Oct. 1 to Oct. 15 as a “gesture of good will” to China.

The U.S. and China have imposed tariffs on billions of dollars’ worth of one another’s goods since the start of 2018, battering financial markets and souring business and consumer sentiment.

Retail sales, a measure of purchases at stores, restaurants and e-commerce sites, rose an adjusted 0.4% last month, the Commerce Department said Friday. That was stronger than the 0.2% increase expected and provides reinforcement that Americans remain willing to spend at a time when many economists worry about economic contraction.

Much of the August increased was thanks to a 1.8% jump in spending on vehicles; without autos and car part sales, retail sales were unchanged for the month.

Investors also looked ahead to the Federal Reserve policy meeting next week, with central bankers widely expected to cut the overnight lending rate another 25 basis points on Wednesday. Such a cut would follow the European Central Bank’s move this week to begin a massive new bond-buying program in a bid to stimulate ailing euro zone economy.

The recent optimism about striking a trade deal, warm-but-not-hot inflation and historically low unemployment, however, makes the rate decision more complicated, Giddis wrote.

“This really puts the Fed in a tough spot. They go into next week’s meeting with a solid economy, pressure from the President, and a market expectation of the FOMC lowering rates,” he wrote. “The White House needs to do its job and cut a trade deal, the Fed needs to do its job consistent with its congressional mandate, either lowering rates or not, and the market needs to adjust to each.”

U.S. Markets Overview: Treasurys chart


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