Traders on the floor of the New York Stock Exchange

Source: The New York Stock Exchange

The yield on 10-year government bonds reached its highest level in over a year on Friday. This is a sign of optimism on an economic comeback, but it also reflects heightened fears of inflation after the $ 1.9 trillion stimulus package came into effect.

The yield on the 10-year benchmark Treasury note rose by 10 basis points to 1.628% around 2:30 p.m. (CET) and briefly reached 1.642%, the highest level since February 2020. The yield on the 30-year Treasury bond rose by 10 basis points to 2.389 %. The returns move inversely to the prices and 1 basis point equals 0.01%.

“The bearish of bonds was compounded by Biden’s return to normal time update. The president has outlined a path out of the pandemic that would bring the US back to some semblance of normality by July 4th,” said Ian Lyngen, rate strategist at BMO Capital Markets, wrote in an email on Friday.

“While last week the Friday afternoon bear pattern has been a significant challenge that has been felt for much of this year, when we think about the information on offer, there is little else we can do to prevent the higher variance in returns the remaining price movements in other markets. “

The yield curve between the 2-year rate of return and the 10-year rate of return reached 1.486%, the highest spread since September 2015.

The yield curve for government bonds is the interest rate difference between different maturities of bonds. When it gets steeper it is considered a positive sign for the economy. Meanwhile, a flattening curve is seen as a warning of economic weakness.

The volatility in returns weighed on US stocks, with the S&P 500 falling 0.3%. The tech-heavy Nasdaq Composite lost more than 1% on concerns about rising interest rates.

Government bond yields rose after Biden signed the $ 1.9 trillion coronavirus relief package Thursday afternoon.

The plan calls for direct payments of up to $ 1,400 to most Americans. Direct deposits will come into Americans’ bank accounts as early as this weekend, White House press secretary Jen Psaki said Thursday.

In addition to announcing his plan to make Covid vaccines available to all adults ages 18 and older, Biden said in his first prime-time address Thursday night that hopefully Americans should be able to gather in small groups around the to celebrate the fourth of July.

Yields were also higher after the number of weekly new jobless claims fell lower than expected on Thursday, reaching 712,000 for the week ended March 6, down from the estimate of 725,000.

The 10-year yield has been rising rapidly lately, increasing from 1% since late January amid concerns about rising inflation. These concerns were compounded by fears that the US government’s tax relief package, in addition to reopening the economy, could stimulate it too quickly and cause prices to rise.

Investors will watch out for the Federal Reserve’s decision on interest rates over the next week and for comments on the central bank’s stance on rising bond yields.

“If the bond sell-off intensifies ahead of the March 17th FOMC decision, the Fed may have to finally take action against the movement in government bond yields,” Edward Moya, senior market analyst at OANDA, told clients. “The Fed has clearly been sticking to the script that tighter financial conditions or disorderly markets would warrant action. If yields stay at a rapid rate, they will get clamor.”

There are no auctions on Friday.

– with reports from Jesse Pound, Yun Li and Tom Franck of CNBC.