Two-year Treasury yields rose at the beginning of July and have held their levels ever since, despite the decline in longer-term yields.
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The spread between the 30-year and the 5-year Treasury yield narrowed to 127.44 basis points on Thursday, heading back toward the 124.53 mark reached on August. 14, the narrowest level since April 17.
Low inflation expectations are preventing longer yields from rising, while two-year yields have little scope to fall, Sumitomo Mitsui’s Kuriki said.
Yields on long-term bonds such as the 10-year notes and 30-year bonds are more sensitive to changes in global growth and inflation outlook.
U.S. government yields were lower Friday, as investors continued to digest Wednesday’s Fed minutes and weigh the possibility of a September rate hike.
It is a more mixed picture in emerging markets debt, where commodity concerns are dragging on the markets whilst the pressure from a looming Fed rate hike drives concerns.
“There’s a nice trend downwards for U.S. Treasury yields”, Birgit Figge, a fixed-income strategist at DZ Bank AG, told Bloomberg. The more eager they are to obtain a security, the lower the rate at which they’ll lend money to get it. Securities that can be borrowed at rates close to the Fed’s target, now in a range of zero to 0.25 percent, are called general collateral. The price of the 0.625 percent security maturing in July 2017 was 99 26/32. For both maturities, this is the lowest yield level since April 30.
The yield on the benchmark 10-year note fell to 2.052% in late-afternoon trading from 2.084% on Thursday.
“I wouldn’t be surprised to see 10- or 30-year Treasuries outperform a bit more looking at how oil prices are doing”, said Jun Kato, senior fund manager at Shinkin Asset Management Co.in Tokyo.
In the $16 billion auction of U.S. five-year inflation-indexed notes, indirect bidders purchased 76.4% of the securities, an all-time high.
Minutes of the Fed’s July meeting released Wednesday showed officials didn’t consider conditions for the first interest-rate increase since 2006 had been met, even though they “were approaching that point”.
Futures show a 50 percent probability the Fed will raise its benchmark rate at its September 16-17 meeting, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.
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Consumer-price inflation slowed to 0.2 percent in July, from 0.3 percent the previous month, according to the median estimate of economists surveyed by Bloomberg before the report. That’s up from 29 percent odds at the end of June.
