Treasury Yields Pop on Fear of Trade War, More Robust Inflation

U.S. Treasury yields rebounded on Friday in reaction to President Trump’s tariff announcement on Thursday that sparked fear of a trade war and more robust inflation.

According to Treasury data, the yield on the benchmark 10-year Treasury Note rose 6 basis points to 2.868 percent, while the yield on the 30-year Treasury Bond was up 6 basis points at 3.143.

June 10-Year U.S. Treasury Notes settled at 120’05, down 0’14.5 or -0.38% and June 30-Year U.S. Treasury Bonds finished at 143 9/32, down 1 2/32 or -0.74%.

Traders said yields rose on fears of stronger inflation as a result of higher materials prices and foreign retaliation. The U.S. is expected to set tariffs of 25 percent when it comes to steel and 10 percent for aluminum, which could emerge as soon as next week and put pressure on companies both domestically and internationally.

Some are saying that top Chinese officials could retaliate against unfriendly tariffs by reducing purchases of U.S. debt in the coming years, even as the Treasury Department prepares to increase supply. And that, in turn, could send yields higher.

Earlier in the week, Federal Reserve Chair Jerome Powell said the central bank could raise interest rates three or more times during the course of this year to prevent the U.S. economy from overheating.

U.S. Economic Data

After a busy week of economic data and hawkish commentary from Powell, there were only two reports on Friday. Revised University of Michigan Consumer Sentiment came in at 99.7, beating the 99.4 estimate, but coming in under the previous 99.9. Revised University of Michigan Inflation Expectations came in unchanged at 2.7%.

U.S. Equity Markets

Two out of three major U.S. stock indexes rebounded into the close to finish higher on Friday, helped by a strong recovery in health care shares.

The benchmark S&P 500 Index settled at 2691.25, up 13.58 or +0.50%. The health care sector was the best-performing sector, gaining 1 percent. The gains were primarily driven by strong moves in shares of Universal Health Services and Perrigo.

The technology driven NASDAQ Composite finished at 7258.14, up 77.58 or +1.07%. The rally was primarily driven by the iShares NASDAQ Biotechnology ETF (IBB), which advanced 2.4 percent. The strong buying produced a huge trading range with the index closing higher after selling off as much as 1.3 percent earlier in the session.

The blue chip Dow Jones Industrial Average did not fare as well as the other major indexes, closing at 24538.06, down 70.92 or -0.29%. The Dow clawed back from a 391 point setback early in the session. The recovery was led by strong performances by Johnson & Johnson and Merck.