US Treasury yields rose on Friday but held below one-year highs reached last week as investors balanced expectations of faster economic growth and higher inflation against quarterly rebalancing that has boosted near-term demand for bonds.
Treasury volatility dropped last week as buyers stepped back into the market, bringing benchmark yields back below the one-year high of 1.754% reached last week.
"As that volatility began to flatline a bit, I think we started to see some incremental demand," said Jonathan Cohn, an interest rate strategist at Credit Suisse in New York.
"The vast majority of that came during Asia trading hours, which to me suggested potentially some renewed buying from those foreign investors that had previously been sidelined amid the relentless sell-off in the high-vol environment," Cohn said.
Benchmark 10-year note yields were last up 5 basis points on the day at 1.660%. The yields fell as low as 1.589% on Wednesday.
Demand for bonds as investors sell equities and rotate into fixed income for quarter-end is seen as supporting bonds this week and early next week.
Many analysts expect Treasury yields to keep rising if economic data begins to meet expectations of strong growth and with inflation expected to jump relative to last year, when price pressures dropped as businesses shut down to fight the pandemic.
"Ultimately in the medium-term we expect yields to continue to rise against a very supportive fiscal backdrop," said Cohn.
Data on Friday showed U.S. consumer spending fell in February by the most in 10 months, as a cold snap gripped many parts of the country and the boost from a second round of stimulus checks to middle- and lower-income households faded.
The consumer spending decline should be temporary. U.S. President Joe Biden will unveil a multitrillion-dollar plan to rebuild America's infrastructure next week, though that should take awhile to boost the economy.
The Federal Reserve has also committed to holding rates near zero for years to come, boosting expectations of stronger growth and inflation.
Philadelphia Fed President Patrick Harker said the central bank will continue to support the U.S. economy until it recovers from the pandemic and he is not worried about inflation.
Treasury bill yields remained at depressed levels as money market investors struggle with a surge of cash and a drop in supply.
One-month yields were last at 0.015%, after going as low as 0.005% last week. The cost of borrowing in the overnight repo market fell to zero, from 0.04% earlier on Friday. It traded in negative territory last week.