30-year Treasury yield hits nine-month low

NEW YORK (MarketWatch) — Long-term Treasury prices gained Friday, sending the 30-year bond yield to its lowest since last July as the broader market notched weekly gains.

The long bond 30_YEAR -0.12% yield, which falls as prices rise, was down 1.5 basis points on the day and 10 basis points on the week at 3.488%, according to Tradeweb. The last time it was that low on a closing basis was in July 2013, as yields were rising sharply on fears about Federal Reserve policy normalization.

Producer prices rose sharply last month
The 30-year bond yield holds little indication for most other borrowing costs, though it serves as somewhat of a long-term outlook on economic growth. The security has at times been an early indicator for movements in other Treasury maturities, according to Anthony Valeri, fixed income strategist at LPL Financial. He noted that the 30-year yield topped out last summer a week before the rest of the market.

“To me, that’s an early sign that bond strength may continue here,” Valeri said.

The 10-year note 10_YEAR +0.34% yield was unchanged Friday at 2.628%, trading at the lower end of its recent range between 2.60% and 2.80%. The benchmark yield is down 10 basis points on the week. The 5-year note 5_YEAR +0.45% yield rose slightly to 1.577%.

Data on Friday showed U.S. producer prices rose at the fastest pace in nine months due to higher costs of clothing retailers, food stores, and chemical goods. The producer price index rose 0.5% in March, compared with a slight drop in February. Economists had expected a rise of 0.1%.

The data on the cost of goods comes as the Federal Reserve tries to nudge inflation higher before normalizing monetary policy. Central bankers have cited persistently low inflation as a key reason for keeping its target lending rate near zero.

While the rise in wholesale prices may signal inflationary pressures building, a better indicator is likely to be the consumer price index, which correlates more closely with the level of costs for Americans. Those data are released Tuesday.

Bond investors have been shifting expectations of when the Federal Reserve will begin to hike key interest rates. Fed Chairwoman Janet Yellen suggested last month that rate hikes could be on the horizon in mid-2015, which spooked the markets. However, she subsequently walked back those remarks, asserting that the current economic environment demands low rates. The market is focused on data as key indicators of where the economy is headed.

“The stated ‘Yellen policy path and the markets’ pricing have been at odds,” said David Robin, co-head of financial futures and options at Newedge, in a note.

Data also showed consumer sentiment rose to its highest in nine months. The University of Michigan and Thomson Reuters index had a preliminary reading of 82.6 in April from a March level of 80. Economists polled by MarketWatch projected the index would hit 80.8.

The Treasury Department on Friday released a few questions that it plans to discuss with primary dealers at a forthcoming quarterly meeting in early May. One question concerned the usefulness of reopenings for 10-year and 30-year auctions. The Treasury has a long practice of reopening those two securities which adds to the size of existing debt sales, to increase liquidity. But because of the increase in auction sizes for those securities in recent years, the Treasury wonders whether it’s still useful.