US Treasury yields are trending higher again, buoyed by upbeat economic news in recent days — on both sides of the Atlantic. Low inflation may persuade the Federal Reserve to delay its first round of rate hikes, but a generally positive run of macro data in recent days has refocused the bond market’s attention on the potential for tighter monetary policy later this year.
The American housing market begs to differ (this week’s release of January housing starts fell short of expectations with a mild dip vs. the previous month). Otherwise there’s still a strong case for expecting moderate growth. Industrial production rose less than forecast last month, but yesterday’s news on jobless claims advised that new filings for unemployment benefits fell more than expected and remain near historic lows. Meanwhile, the Conference Board’s US Leading Index posted a modest gain for January.
Today’s preliminary releases of February business survey data for Europe also suggest that growth may not be as precarious around the globe as previously assumed. The flash estimate of Markit’s Eurozone PMI Composite Output Index for this month ticked up to a seven-month high, and reflected job growth at the highest rate in four years.
Consider, too, that the recent deceleration in global growth reversed course last month. The JP Morgan Global Manufacturing & Services PMI reflected a slightly faster expansion in the January estimate, offering a counterpoint to recent forecasts of a slowdown in the global economy.
Stepping back and considering the recent run of numbers suggests that the crowd will trim its demand for liquidity and safety. In fact, that’s just what we’re seeing via Treasury yields lately. After trending lower through most of January, interest rates have rebounded this month. The benchmark 10-year Treasury yield rose to 2.11% yesterday (Feb. 19), a hair below the highest level so far this year.
The 2-year yield, which is considered to be highly sensitive to rate expectations, has also run higher lately as well. Rising to 0.67% yesterday, the 2-year has regained most of the slide that unfolded from late-December through January.
