The yields on U.S. government debt experienced a notable surge on Monday, marking the most significant increase in over a month. This upward movement was triggered by indicators pointing to persistent inflation, as reflected in both the Institute for Supply Management’s manufacturing index and last Friday’s Personal Consumption Expenditures (PCE) report.
What happened
The yield on the 2-year Treasury note surged by 9.8 basis points to reach 4.716%, up from 4.618% recorded on Thursday. This notable increase occurred as the bond market remained closed on Friday for the Good Friday holiday. Similarly, the yield on the 10-year Treasury note experienced a significant jump of 13.7 basis points, rising to 4.329% from 4.192% on Thursday.
Monday’s levels mark the highest point for both the 2-year and 10-year yields since March 18, based on data from Dow Jones Market Data at 3 p.m. Eastern time. Furthermore, the yields for both the 2-year and 10-year bonds saw their most substantial increases since February 13.
Additionally, the yield on the 30-year Treasury bond climbed by 13 basis points, reaching 4.467% from 4.337% recorded on Thursday. This represents the largest single-day jump since October 12, and Monday’s level is the highest observed since February 21.
What drove markets
The latest data released on Monday revealed a positive shift in the barometer of business conditions at U.S. manufacturers in March, marking the first time in 17 months that this indicator turned positive. This development signals a potential recovery in the industrial sector of the economy. Additionally, the ISM’s data showed a notable increase in the prices-paid component, a key measure of inflation, which rose by 3.3 points to 55.8%.
The growing risks of inflation have raised concerns among some analysts, as evidenced by the recent data. This inflationary pressure could disrupt the Federal Reserve’s expectations for three quarter-point rate cuts this year.
Bond markets were also influenced on Monday by a delayed reaction to Friday’s release of the PCE Price Index, the Fed’s preferred inflation gauge. The index indicated a significant rise in U.S. prices in February. Specifically, core prices, which exclude volatile food and gas prices and are closely monitored by the Fed, increased by 0.3% in February. However, the 12-month core rate slightly dipped to 2.8% from the previous 2.9%.
Looking ahead, the highlight of this week’s data will be Friday’s nonfarm payrolls report for March. Analysts expect the report to reveal the creation of 200,000 new jobs in the U.S. economy last month, providing further insights into the labor market’s performance.