10-year Treasury heads for largest weekly rise in 6 weeks as inflation fears percolate

These are the last days of small government and the Biden administration will make sure of that

U.S. Treasury yields clambered higher early Friday, with the 10-year Treasury note headed for its sharpest yield rise in about six weeks, as debt prices came under pressure over worries of pent-up inflation, even as recent employment data have struggled to support fears of reflation.

What are Treasurys doing?

The 10-year Treasury note yield

rose 2.7 basis points to 1.314%, its highest since last February, while the 2-year note rate

was flat at 0.111%. The 30-year bond yield

gained 2.2 basis points to 2.098%.

For the week, the 10-year Treasury was headed for its steepest weekly yield climb, around 10 basis points, since around Jan. 8, according to Dow Jones Market Data.

Bond prices fall as yields rise.

What’s driving Treasurys?

Government debt markets were renewing their efforts to sell as investors remained worried about the potential for inflation when and if Washington passes a new pandemic relief bill that could inject over a trillion dollars into the U.S. economy, potentially bolstering savings that may be spent when the vaccine rollout inoculates a growing share of Americans.

But labor-market data, notably a recent jobless claims report, indicating modest employment gains last month and an elevated pace of layoffs have sapped some of the enthusiasm of the bond bears.

On Thursday, Treasury Secretary Janet Yellen said that a large fiscal relief package was necessary to counter the economic hit from the pandemic, defending the Biden administration’s proposed $1.9 trillion price tag for aid.

Meanwhile, the economic calendar was sparse on Friday, with only existing home sales for January and purchasing manager surveys of both the services and manufacturing sector later due in the morning.

What did market participants say?

“Without a clear direction from the data today and risk assets trading softer the trend higher in bond yields may further lose steam,” wrote Padhraic Garvey, regional head of research for the Americas at ING.

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