2-9-18 5:38 PM EST | Email Article
By Gunjan Banerji 

U.S. government bonds strengthened Friday, pausing a bout of selling that has dominated much of the year.

The yield on the benchmark 10-year U.S. Treasury note fell to 2.829% from 2.851% Thursday. Yields fall as bond prices rise.

The 10-year yield recorded its biggest weekly yield decline of the year after rising steadily in February along with investors' concerns about a pickup in inflation. Inflation is a primary threat to government bonds because it reduces the purchasing power of their fixed payments.

"The bond market has adjusted to an inflation outlook that's higher than it was three to six months ago. Now we need to get confirmation of that, " said Jeff MacDonald, head of fixed-income strategies at Fiduciary Trust Company International.

Recent increases in market-based inflation expectations will be tested when the Labor Department releases information on consumer prices Wednesday. Other data due next week on retail sales, jobless claims and consumer confidence will help shape how investors assess the effects of tax cuts on economic activity.

President Donald Trump signed a two-year budget deal Friday morning, quashing some fears of a prolonged government shutdown. But U.S. lawmakers' spending plan could widen the budget deficit, increasing the supply of Treasurys in the market, analysts say. Auctions of new bonds this week met tepid demand.

Rising Treasury yields have rippled into the stock market, analysts say, with major indexes on track for their worst week in years. Volatility across assets also ticked up this week.

"A lot of people were thinking that volatility was dead, that inflation was dead. People are starting to rethink those positions," Mr. MacDonald said.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

 

(END) Dow Jones Newswires

February 09, 2018 17:38 ET (22:38 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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