Treasury yields were still slightly higher on Friday morning after a more-than-expected fall in December retail sales, as investors focused on Federal Reserve policymakers setting the stage for tighter financial conditions, including a liftoff of benchmark interest rates. Were were
What is Yield doing
What is driving the market?
Markets have been volatile on the prospect of tightening financial conditions, but yield moves have been comparatively low for this week, although 2 years of selloff – pushing its yield higher.
Still, analysts expect the benchmark 10-year Treasury yield to eventually breach 2%, the psychologically important level for debt used to price everything from mortgages to auto loans.
Higher yield expectations are supported by comments from policymakers including Federal Reserve Governor Christopher Waller, who recently suggested five interest rate hikes are likely in 2022 as the central bank aims to largely beat inflation. is to be removed. However, Waller said his baseline expectation was for a three-year rate hike, which is more in line with expectations.
His remarks come at a time when inflation measures this week showed pricing pressure at its highest level in decades. Consumer prices rose 0.5% in December, pushing growth in the cost of living past a nearly 40-year high of 7% last year.
Meanwhile, Lyle Brainard, the White House candidate to serve as the Fed’s No. 2, told a Senate finance panel on Thursday that efforts to reduce inflation were the Fed’s most important task.
Data released Friday showed US retail sales for December fell 1.9% as Omicron spread and shoppers faced higher prices due to shortages and rising inflation. Economists polled by The Wall Street Journal had forecast a 0.1% decline in December.
Industrial output fell 0.1% in December after a revised 0.7% gain in the prior month. A report on merchandise inventory from the University of Michigan and preliminary readings on consumer sentiment is due at 10 a.m. Eastern Time.
What are strategists saying
“A tough stock market contributed to a sharp 10-year journey down 1.70% yesterday,” Jim Vogel, executive vice president of FHN Financial, wrote in a daily research note. One of the three factors that “responsible for the decline in yield momentum and size across the curve” was the massive buying in 5-year Treasury futures, which “surprised traders.”