Friday, 25 May 2018 19:00

30-year U.S. government bond yield posts largest weekly drop in nearly two years

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Treasury prices rose on Friday, pushing yields lower, as lingering concerns over the composition of the new Italian government helped stoke appetite for U.S. government paper and other haven assets.

Overall, Treasurys rallied for the week following a dovish set of minutes from the Federal Reserve that saw investors cut back their expectations for a more aggressive rate increase trajectory.

The U.S. bond market closed early Friday at 2 p.m. Eastern and will remain shut on Monday for the Memorial Day holiday.

Read: Which markets are closed on Memorial Day?[1]

What are Treasurys doing?

The 30-year bond yield TMUBMUSD30Y, -1.10%[2] slipped 3.8 basis points to 3.098%, contributing to a weekly drop of 11.8 basis points, the largest since July 2016.

The 10-year Treasury note yield TMUBMUSD10Y, -1.66%[3] fell 4.9 basis points to 2.931%, extending a weekly drop of 13.6 basis points, the largest such decline since April 2017.

The 2-year note yield TMUBMUSD02Y, -1.90%[4] was down 3.2 basis points to 2.480%, and 6.8 basis points for the week. This was the largest weekly decline since Feb. 9.

The German 10-year government bond yield TMBMKDE-10Y, -14.34%[5] fell 6.1 basis points to 0.405%, while the Italian 10-year bond yield TMBMKIT-10Y, +6.37%[6] jumped 5.5 basis points to 2.452%, widening the yield gap between the two bonds by 11.6 basis points to 205 basis points.

Bond prices move in the opposite direction of yields

What’s driving Treasurys?

A selloff in Italian debt pushed investors into German bonds and Treasurys, widely considered as haven investments. Italy’s prospective prime minister, Giuseppe Conte, was preparing to finalize a coalition government made up of the anti-establishment Five Star party and the far-right League. Questions over the composition of the future cabinet have lingered as investors remain wary that the new government is willing to entertain budget-widening policies.

Some market participants also said a lack of communication from the incoming members of Italy’s government are keeping investors on edge. Without more transparency, they said, this cloud of uncertainty would continue to hang over its government, making it too risky to buy Italian bonds.


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