Treasury Yields Finish Week Lower in Reaction to Dovish Fed Minutes, Safe-Haven Buying

U.S. Treasury yields declined on Friday and finished the week lower as investors continued to react to the U.S. Federal Reserve Monetary Policy Meeting Minutes, released on Wednesday, that signaled the central bank could allow inflation to run above its mandated target and renewed geopolitical fears pushed investors into safe-haven assets.

The yield on the benchmark 10-year U.S. Treasury note was lower at 2.931 percent, down 0.05 percent, while the yield on the 30-year U.S. Treasury bond was lower at 3.090 percent, down 0.041 percent.

To recap the events this week, the Federal Reserve’s May meeting minutes showed the central bank may be willing to let inflation run a little hotter than its two percent goal.

Renewed geopolitical tensions also continued to drive investors into the safety of U.S. Treasurys, driving down yields. Investors were primarily reacting to comments made by President Trump about his disappointment over the direction of the U.S.-China trade negotiations and the surprise cancellation of the widely anticipated meeting between President Trump and North Korean President Kim Jong Un.

In other news, Treasury investors showed almost no reaction to new orders for U.S.-made capital goods that increased more than expected in April. This may have been because overall orders for durable goods dropped 1.7 percent in April. Additionally, Revised University of Michigan Consumer Sentiment came in below expectations. Finally, several Fed policymakers discussed the difficulties the central bank faces as interest rate near “neutral”.

U.S. Equity Market Finish Mixed

The major U.S. stock indexes finished mixed on Friday, but were still able to hold on to their weekly gains. Solid corporate earnings helped underpin the indexes, but gains were limited by geopolitical fears following President Donald Trump’s decision to cancel a key summit with North Korea.

In the cash market, the benchmark S&P 500 Index settled at 2721.33, down 6.43 or 0.24%. The blue chip Dow Jones Industrial Average closed at 24753.09, down 58.67 or -0.24% and the tech-driven NASDAQ Composite ended the session at 7435.79, up 11.36 or +0.15%.

A steep drop in crude oil prices also weighed on the stock market. U.S. West Texas Intermediate crude futures fell 4 percent after several reports suggested OPEC and non-OPEC members could increase supply. This move led to losses in shares of Chevron and Exxon Mobil, which dragged down the Dow Jones Industrial Average. Weak energy and financial stocks pressured the S&P 500 Index. In the NASDAQ Composite, gains in Netflix and Apple were offset by losses in Facebook and Cisco.

Stock market volume was below average on Friday as investors prepared a long U.S. holiday week-end.