Treasury yields slumped on Friday, extending their weeklong decline, after a senior Federal Reserve official voiced concerns over softer global growth, potentially opening the door to less rate hikes than expected next year.
The 10-year Treasury note yield TMUBMUSD10Y, -0.76% was down 3.5 basis points to 3.083%, after trading at 3.189% at the end of last week. The 2-year note yield TMUBMUSD02Y, -1.46% slipped 5 basis points to 2.812%, but below last Friday’s closing level of 2.934%. While, the 30-year bond yield TMUBMUSD30Y, -0.11% edged lower by 1.3 basis point to 3.353%, from 3.392% last Friday.
Industrial production rose 0.1% in October, with economists polled by MarketWatch having expected an increase of 0.2%. The U.S. manufacturing industry has started to show signs of slowing down, albeit from a torrid pace of growth, as higher labor and tariff costs weigh on the bottom line. Meanwhile, more firms have reported cutbacks to their investment spending plans despite tax cuts enacted late last year.
This comes as senior officials at the Federal Reserve, namely Fed Chairman Jerome Powell, have repeatedly emphasized the strength of U.S. growth, affirming the central bank’s intent to raise rates at a steady pace. Analysts estimate next year could see two to four rate hikes depending on how economic data pans out.
But louder concerns over global growth from Fed Vice Chairman Richard Clarida on Friday may stoke expectations for the central bank to pause or even end its rate hike cycle earlier than expected. This comes as Powell and Dallas Fed President Robert have also alluded to weaker global growth as a downside risk to tighter monetary policy.
“Clarida’s remarks were interpreted as dovish on net, in particular that we’re already in the vicinity of neutral, the Fed has to factor in foreign growth headwinds, and that he doesn’t anticipate a big pick up in inflation next year,” said Jon Hill, fixed-income strategist at BMO Capital Markets, in a note.
In the background, the fallout from a draft Brexit deal has seen key ministers resign and speculation that U.K. Prime Minister Theresa May could face a vote of no confidence from pro-Brexit members of the Conservative party.
The possibility of a no-deal arrangement is dawning on British and European politicians as May continues to push for a withdrawal agreement which could stumble in parliament. Investors have sought out haven assets to take shelter from the uncertainty over Brexit, helping U.S. and U.K. government bonds rally.
“If parliament opposes the deal and the government collapses, a new government could be returned to push through an agreement, whether Conservative or Labour. However, there continues to be a material risk of a no-deal Brexit,” wrote analysts at ABN Amro.
See: Here’s how Brexit turmoil could become a problem for U.S. and global investors
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