U.S. Treasury yields plunge as market prices lower inflation
NEW YORK — U.S. Treasury yields tumbled on
Friday and the benchmark 10-year note fell the most since
COVID-19 roiled markets in March 2020, as investors priced in
the likelihood the Federal Reserve will force inflation down to
near its target rate.
The breakeven rate on longer-dated inflation-protected
bonds, which measures the difference with the yield on nominal
Treasury debt, fell to nine-month lows.
The yield on 10-year notes tumbled 23.3 basis
points from the open to the session’s lowest point, before
paring the decline, to be down 7.4 basis points at 2.900%.
The two-year yield, which typically moves in step
with interest rate expectations, slid 8.4 basis points to
2.843%. Both the two-year and 10-year yields were at roughly
The breakeven rates on five- and 10-year Treasury
Inflation-Protected Securities, or TIPS, slid to 2.634% and
2.361%, respectively, a level last seen in September 2021.
“The breakeven market, the difference between TIPS versus
regular Treasuries, is dramatically downward sloping. It’s
barely above the Fed’s long-term average (inflation) target of
2%,” said Nancy Davis, managing partner and chief investment
officer at Quadratic Capital Management LLC in Greenwich,
“The market is pricing that the Fed’s hiking rates is going
to dramatically bring down future CPI inflation,” she said.
Uncertainty about when inflation will peak and how deep and
long a potential recession will be is driving all security
markets, whether credit or equities, said Dec Mullarkey,
managing director of investment strategy and asset allocation at
SLC Management in Boston.
“Central banks are saying the biggest threat out there is
inflation and we’re going do whatever it takes to get that under
control,” Mullarkey said. “That’s the message that the markets
have priced into their securities. They’re saying, ‘There’s a
lot of risk, there’s a lot of volatility.’”
The gap between yields on two- and 10-year Treasury notes
, seen as an indicator of a potential recession when
the short end of the yield curve inverts and rises above the
long end, was at 5.6 basis points.
The U.S. dollar 5 years forward inflation-linked swap
, seen by some as a better gauge of inflation
expectations due to possible distortions caused by the Fed’s
quantitative easing, was last at 2.364%.
July 1 Friday 1:12 PM New York / 1712 GMT
Price Current Net
Yield % Change
Three-month bills 1.68 1.7102 0.010
Six-month bills 2.4475 2.5117 0.007
Two-year note 100-78/256 2.841 -0.086
Three-year note 100-6/256 2.8663 -0.114
Five-year note 101-166/256 2.8926 -0.111
Seven-year note 101-248/256 2.9362 -0.094
10-year note 99-204/256 2.8986 -0.075
20-year bond 98-36/256 3.3791 0.000
30-year bond 95-24/256 3.1289 0.007
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 29.50 -1.50
U.S. 3-year dollar swap 11.00 -1.50
U.S. 5-year dollar swap 3.00 0.00
U.S. 10-year dollar swap 7.50 0.25
U.S. 30-year dollar swap -24.00 -0.50
(Reporting by Herbert Lash
Editing by Marguerita Choy and Leslie Adler)