Bond Report: Two-year Treasury yield posts its biggest weekly rise in two years as traders push Federal Reserve for response to inflation

Treasury yields slipped Friday but posted big weekly gains, with the 2-year rate climbing by the most in more than two years, as traders remained focused on the highest U.S. inflation rate in almost 31 years and the need for a possible response by the Federal Reserve.

What are yields doing?

The 2-year Treasury rateBX:TMUBMUSD02Y rose 12.3 basis points this week to 0.522%, a new 52-week high. It’s the highest level since March 18, 2020, and biggest weekly advance since Oct. 11, 2019. It rose 1.9 basis points on Friday, from 0.503% on Wednesday. The bond market was closed Thursday for Veterans Day.

The 10-year Treasury note yield

rose 13.2 basis points for the week to 1.583%. That’s the biggest one-week gain since Oct. 8, based on 3 p.m. levels, according to Dow Jones Market Data. It was higher by 2.5 basis points on the day, versus Wednesday’s 1.558% level.

The 30-year Treasury bond

yield rose 7 basis points on the week to 1.955%, the largest one-week gain since Oct. 8. It rose 4 basis points on Friday, edging higher from 1.917% on Wednesday.

What’s driving the market?

In data released Friday, the University of Michigan’s consumer-sentiment indexfell to 66.8 in November from 71.7 in previous month, producing a headline figure that was the lowest since 2011. Meanwhile, a record 4.4 million workers quit their jobs in September as the U.S. suffers from its worst labor shortage in decades.

The disappointing sentiment reading comes amid evidence of a persistent rise in U.S. inflation and worries that the Federal Reserve will need to act faster to tackle pricing pressures, which remained the Treasury market’s focus on Friday.

On Wednesday, the annual headline rate for consumer prices came in at a nearly 31-year high, with the pace of inflation over the past year rising to 6.2% in October from 5.4% in the prior month. That’s more than double the Federal Reserve’s 2% target and the sixth straight reading at or above 5%.

Signs of growing inflation worries were seemingly everywhere on Friday, with interest-rate traders pushing for a faster response from the Fed and investors flocking to gold, a traditional haven from higher prices.

What strategists are saying

“The inflation genie is out of the bottle in the U.S.” after Wednesday’s consumer-price report for October, Societe Generale strategist Subadra Rajappa said via phone. “We’re starting to see more persistent, broad-based inflation take over and it’s coming from much more permanent, stickier sources. The risk is that if Fed policy makers wait too long, they’ll need to pump on the brakes a lot faster, threatening the recovery.”

“The Treasury market remains under pressure as the implications from the stronger-than-expected October inflation report continue to reverberate,” BMO Capital Markets strategists Ian Lyngen and Ben Jeffery wrote in a note. Many observations are “that the upward pressure on inflation has now become so broad-based as to warrant the FOMC throwing in the proverbial towel and conceding that inflation isn’t going to simply dissipate without a greater policy response.”

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