Treasury prices edged slightly lower in Asia on Friday, snapping an eight-session rally, with traders taking profit from a sudden flattening of yield curves as markets careen from worrying about high inflation to worrying about a slowdown in growth.
The yield on benchmark 10-year U.S. Treasuries rose as far as 5.1 basis points to 1.3460% before settling around 1.3310% during the Tokyo afternoon. Thirty-year yields rose 3.5 basis points to 1.9606%.
The moves take the edge off a rally in prices that had the 10-year yield testing major technical levels at 1.25% on Thursday. They still leave most of the gains intact, though, and the 10-year yield down more than 20 basis points in two weeks.
The bond rally has followed a hawkish shift from the Federal Reserve which convinced investors it would act to keep inflation under control, but the mood has since been tinged with worries that a resurgent coronavirus could dent or derail the recovery.
Some slightly softer-than-expected U.S. data and surprise hints at easing in China have also contributed to a stampede out of previously crowded bets on higher long-end rates.
“I think that the market has overshot to the downside in yield and is probably due a bit of a turnaround,” said Martin Whetton, head of fixed income at Commonwealth Bank in Sydney.
“But don’t go looking for a move back to where we were,” he said. “Too much emphasis has been placed on inflation, not realising that by lifting front-end rates...what you’re immediately doing is tapping down on inflation over the long term.”
For the week so far, 10-year Treasury yields are down 9.9 basis points, their sharpest weekly drop in a month, while at the short end of the curve, two-year yields are down 3.3 basis points, their largest weekly drop in nearly a year.
(Reporting by Tom Westbrook; Editing by Rashmi Aich)
Source: Reuters