The benchmark U.S. 10-year Treasury yield rose on Friday following its biggest two day drop in about three weeks after economic data indicated high inflation could persist for some time. The producer price index for final demand rose 0.7% last month, the Labor Department said, a tick above the 0.6% estimate. In the 12 months through August, the index has accelerated 8.3%, the largest year-over-year advance since November 2010.
Investors have been highly attuned to labor market and inflation data for signs of when the U.S. Federal Reserve may announce plans to begin tapering its massive bond-buying program. But rising COVID-19 cases from the Delta variant threaten to stall the economic recovery, which could alter the Fed’s policy path. On Thursday, President Joe Biden announced policies that require most federal employees to get COVID-19 vaccinations and push large employers to have their workers inoculated or tested weekly.
“The fact we are locking down and causing some economic destruction again is having a positive effect on bond yields,” said Tom di Galoma, managing director at Seaport Global Holdings in New York. “Everybody that is in the economic world sees inflation … it is definitely there but the market is discounting it because of the variant, that is really the bigger picture.” The yield on 10-year Treasury notes was up 4.1 basis points to 1.341%.
For the week, the yield was up 3 basis points and on pace for its third straight weekly gain, which would mark the longest streak of weekly gains since a seven-week run that ended in mid-March. The 10-year yield has traded between a high of 1.423% and a low of 1.127% since mid-July, and di Galoma expects that range to play out until early October.