10-year Treasury yield logs biggest monthly decline since 2011 in August
U.S. Treasury yields fell Friday after investors bought bonds before the end of the month, with a key update on inflation showing price pressures remain muted.
The Treasurys market capped a volatile month, which has been responsible for nearly half of the this year’s decline in the 10-year Treasury yield. The 30-year bond yield also touched its all-time low in August, pushing below 2% for the first time in its history.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +0.16% fell 1.7 basis points on Friday, extending a monthlong drop of 53 basis points, the biggest such move since August 2011.
The 30-year bond yield TMUBMUSD30Y, -0.11% fell 1.7 basis points to 1.968%, contributing to a weeklong decline of 5 basis points. The so-called long bond logged a 57 basis point drop this month, its biggest such move since September 2011.
The 2-year note rate TMUBMUSD02Y, -1.30% was down 2.4 basis points to 1.508%. The short-dated note tumbled 38.8 basis points in August, marking its biggest monthly slump since November 2008. Bond prices move in the opposite direction of yields.
What’s driving Treasurys?
A resurfacing of trade tensions sparked the bond-market’s roaring rally this month after President Donald Trump pledged to impose tariffs on all remaining Chinese imports after talks between negotiators from both sides in July. This spurred a tit-for-tat escalation of import levies, drawing doubts over the possibility of a resolution to trade issues soon.
Lingering global growth concerns and expectations for further rate cuts also spurred inflows into government bonds throughout this month.
In economic data, core price consumption expenditures stripping out for volatile food and energy prices for July rose 0.1%, leaving it at a yearly pace of 1.6%. Economists polled by MarketWatch had expected the core PCE gauge to rise by 0.2%.
Higher inflationary pressures can weigh on appetite for government debt by eroding the value of a bond’s fixed-income payments.
The University of Michigan’s consumer sentiment index for August fell to a reading of 89.8, its lowest level in three years.
Analysts suggested month-end buying may also have been another factor for higher bond prices and lower yields on Friday, as money managers topped up on government paper to maintain the average maturity of their portfolios before the end of August. When debt rolls off a bond-fund portfolio, the average maturity will fall, drifting away from the maturity of their competing benchmark index.
What did market participants’ say
“As long as the inflation data remains weak, the better trade in bonds is the long one,” wrote Kevin Giddis, head of fixed income at Raymond James.
Demand for haven assets has soared amid trade and tariff concerns, weakening global growth and political issues around the world, including the possibility of a no-deal Brexit. There is also uncertainty around what future actions the Federal Reserve may take on rates. Which one has been the determinant factor pushing down Treasury yields? “I think they all matter,” said Michael Cuggino, Permanent Portfolio Family of Funds president, in an interview.