US 10-year bond yields slide back to 1.40% after volatile week

• Yields on US bonds fell sharply on the last trading day of the week.
• 10-year yields, which hit the 1.45% level on Thursday, fell back to 1.40% on Friday.

After climbing all week, U.S. bond yields They are experiencing a sharp pullback on Friday as bond buying accelerated until the close of US trading. The sell is most pronounced at the long end of the US Treasury curve, which has flattened sharply; 30-year bonds are now down nearly 19 basis points on the day to just over 2.10%. 10-year yields are down just over 10 basis points to hit 1.40%. 2-year yields, which have remained comparatively well anchored throughout the week and at no point exceeded the upper limit of the federal funds rate target range (of 0.25%), are down 3 bp to just under 0.14%. The 2-year / 10-year government bond yield spread (an indicator of the steepness of the curve) has retreated sharply from Thursday’s highs above 140 bps and is currently around 129 bps. Real US bond yields have plummeted even largely on Friday; the US 10-year TIPS yield, which peaked at -0.528% on Thursday, is again below -0.7% on Friday.

Market psychology – enthusiasm to buy the dip after Thursday’s strong bond market selloff – appears to be the predominant driver of price action once again as fundamentals take a backseat. In fact, while they have remained subdued, Fed officials this week refrained from signaling any concerns about the recent upward movement in US government bond yields, so it is not the Fed that which is driving bond yields down. Despite Friday’s slide, bond yields appear poised to end the week at a decent amount above where they started; 10-year yields are up about 6 basis points from Monday’s opening levels of around 1.36% and 10-year TIPS yields are up about 7 basis points from this week’s opening levels just below the -0.8%.