U.S. Treasuries have the best week of the year

The U.S. Treasury recorded its best week of the year, as investors set aside the highest inflation rate since 2008 and accumulated government debt.

10-year benchmark yield Treasury note it fell 0.103 percentage points to 1.45 percent, and highlights the biggest weekly decline since June last year.

The movement has been driven by decline inflation expectations. The 10-year par inflation rate fell 0.08 percentage points this week to 2.34 percent.

This cooling of long-term inflation expectations came on Thursday with data showing year-on-year growth in the US consumer prices jumped to 5 percent in June.

This means that there is a growing willingness among investors to accept the mantra of the Federal Reserve that higher inflation will be transient, consolidating after the comparisons of the blocked economy last year.

The 10-year Treasury yield it sank 0.06 percentage points on Thursday, before recovering 0.02 percentage points on Friday.

There has been a big change in the biggest in the world government bond on the market in the last month. Ten-year inflation expectations reached their highest level since 2013 in early May, with the 10-year Treasury giving up 1.70 percent at that point. Many fund managers bet that the Fed would have to respond to the impact of inflation by soon reducing its monetary stimuli, backed by government purchases and now $ 120 billion in mortgages backed by the government.

“Last month people were looking at the rise in inflation and thought that central banks could not be alone and did nothing,” said Andrea Iannelli, investment director at Fidelity International. “But investors are waking up to what they’re really going to do.”

Analysts say the recent rally has been further fueled by a brief tightening as investors who had made bets against the Treasury earlier in the year had to throw in the towel as the market moved against them.

Despite buying this week, many investors are holding short positions, suggesting that tightening may continue and yields may fall further, according to Ian Lyngen, head of the US rates strategy at BMO Capital Markets.

A BMO poll last week found a 71 percent record for investors that would be the next upward move in Treasury yields. “How many questions have we asked” how long will the current distortions last? “, Said Lyngen.

Others expect this week’s Treasury rally to be temporary, and inflation not.

In that context, the Fed will soon begin the process of smoothing markets to slow bond purchases, perhaps as soon as it meets next week, according to Oliver Jones of Capital Economics.

The recent rally in the first quarter of the year “was just a pause for breath” in the first quarter of the year, he said. “We doubt it will last.”

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