Treasuries Move To The Downside Following Early Volatility

After fluctuating early in the session, treasuries showed a notable move to the downside over the course of morning trading on Friday.

Bond prices bounced back and forth across the unchanged line in morning trading before sliding firmly into negative territory in the afternoon. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 6.2 basis points to 3.511 percent.

The lower close by treasuries may have reflected profit taking, with the increase by the ten-year yield coming after it ended Thursday’s trading at its lowest closing level in over a month.

Traders may also have moved out of the relative safety of bonds following upbeat consumer sentiment and inflation expectations data.

The University of Michigan said its consumer sentiment index jumped to 64.6 in January from 59.7 in December. Economists had expected the index to inch up to 60.5.

With the much bigger than expected increase, the consumer sentiment index reached its highest level since hitting 65.2 in April 2022.

“Consumer sentiment remained low from a historical perspective but continued lifting for the second consecutive month, rising 8% above December and reaching about 4% below a year ago,” said Surveys of Consumers Director Joanne Hsu.

The report also showed a continued decrease in one-year inflation expectations, which tumbled to 4.0 percent in January from 4.4 percent in December, falling for the fourth straight month.

“The current reading is the lowest since April 2021 but remains well above the 2.3-3.0% range seen in the two years prior to the pandemic,” said Hsu.

The Labor Department released a separate report showing an unexpected increase in U.S. import prices in the month of December.

The Labor Department said import prices rose by 0.4 percent in December after falling by a revised 0.7 percent in November.

The rebound surprised economists, who had expected import prices to decrease by 0.8 percent compared to the 0.6 percent drop originally reported for the previous month.

Meanwhile, the report showed a much steeper than expected nosedive by export prices, which plunged by 2.6 percent in December after declining by a revised 0.4 percent in November.

Economists had expected export prices to decrease by 0.5 percent compared to the 0.3 percent dip originally reported for the previous month.

Following the long holiday weekend, next week’s trading may be impacted by reaction to reports on producer prices, retail sales, industrial production, housing starts and existing home sales.

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