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Bond Report: Bond yields drop after record-low reading of consumer sentiment

Bond yields declined Friday, after data showed a downward revision in inflation expectations as consumer sentiment fell to a record low.

What’s happening
  • The yield on the 2-year Treasury TMUBMUSD02Y, 3.071% fell 1 basis point, to 3.02%. Yields move in the opposite direction to prices.
  • The yield on the 10-year Treasury TMUBMUSD10Y, 3.110% slipped 2 basis points, to 3.07%.
  • The yield on the 30-year Treasury TMUBMUSD30Y, 3.242% was steady at 3.20%.
What’s driving the market

The University of Michigan’s consumer sentiment index fell to a record low of 50 — slightly below the initial reading of 50.2 — but importantly, inflation expectations for the next five years were revised down to 3.1% from 3.3%.

Federal Reserve Chair Jerome Powell said the central bank took notice of the rise in inflation expectations revealed in the preliminary release of the University of Michigan survey, which he said contributed to the decision to lift interest rates by 75 basis points rather than 50 basis points this month.

Market-derived inflation expectations have dropped, due to worries the Fed will tighten so much as to trigger a recession. The yield on the 10-year TIPS dropped to 0.59% on Thursday, from as high as 0.89% last week.

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