US yields climb, poised for weekly rise as investors gauge economic strength

NEW YORK – US Treasury yields rose on Friday and were on pace for a weekly advance as investors weigh recent economic data and the path of interest rates from the Federal Reserve in the near term.

Yields have been choppy throughout the week and have remained in a tight range as markets have grappled with a revelation by Federal Reserve Chair Jerome Powell that the central bank had been threatened with a criminal indictment over a building renovation project, rising tensions in the Middle East, and US economic data on the labor market and inflation.

In addition, several Fed officials this week expressed a need for the central bank to remain cautious in cutting interest rates.

“The bond market’s still relatively unclear as to where things go next, there’s lots of uncertainty really in both directions, both towards higher and lower yields,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

“The driving force is still very much what happens to the Fed and what happens to the economy going forward, and on that, there’s just an extreme lack of clarity from investors, so that’s why we’ve been stuck in that very, very tight range in rates.”

The yield on the benchmark US 10-year Treasury note rose 4.3 basis points to 4.203% and was up 3.4 basis points for the week.

The yield on the 30-year bond rose 1.8 basis points to 4.804% and has shed 1.2 basis points on the week, putting it on track for a second straight weekly decline.

Yields moved higher after President Donald Trump on Friday praised economic adviser Kevin Hassett at a White House event and said he may want to keep him in his current role, denting market expectations he would succeed Fed Chair Jerome Powell.

Fed officials expected to speak on Friday include Bank of Boston President Susan Collins, Vice Chair for Supervision Michelle Bowman and Vice Chair Philip Jefferson.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 4.7 basis points to 3.611% after hitting a five-week high of 3.613% and is set for a second straight weekly gain.

Economic data on Friday showed manufacturing output rose 0.2% last month after an upwardly revised 0.3% gain in November, the Federal Reserve said, topping the estimate of economists polled by Reuters calling for a decline of 0.2%.

A separate report showed the National Association of Home Builders/Wells Fargo Housing Market index dropped 2 points to 37 in January, remaining below the 50 break-even point for 21 straight months as affordability concerns stymied potential buyers and rising costs dented construction activity.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 59 basis points.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.396%, its highest since November 10, after closing at 2.368% on Thursday.

The 10-year TIPS breakeven rate was last at 2.317%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak in New York; Editing by Matthew Lewis)