U.S. government bonds rallied on Friday, driving yields to their sharpest yield decline since late May as turmoil in Europe, sparked by questions about a knock-on effect from economic distress in Turkey, rattled investors’ sentiment and sent them fleeing to the perceived safety of sovereign paper.
Yields momentarily moderated their decline after a report on consumer prices suggested that inflation on a year-over-year basis is percolating, solidifying expectations for at least one interest-rate hike the by Federal Reserve next month and firming anticipation for another in December, market participants said.
The 10-year Treasury note yield TMUBMUSD10Y, -1.92% tumbled by 7.6 basis points to 2.859%, a day after marking its largest one-session yield decline since July 3, based on values around 3 p.m. Eastern, according to Dow Jones Market Data.
The 30-year bond yield TMUBMUSD30Y, -1.76% gave up 6.3 basis points to 3.017% after its sharpest yield decline in a day since June 27.
The two-year note yield TMUBMUSD02Y, -1.55% meanwhile, shed 5.3 basis points to 2.6%, following its biggest daily yield drop also since July 3 on Thursday.
Bond prices rise as yields fall.
All three maturities saw their steepest yield daily decline since May 29, according to Dow Jones Market Data.
For the week, the 2-year fell by 4.5 basis points overall, the 10-year yield saw a weekly drop of 9.4 basis points, while the 30-year rate fell 7.6 basis points on the week. All maturities registered their worst weekly drop since the period ended May 25.
Europe turmoil served as the main driver for bond moves, with equities across Europe, including the pan-European Stoxx Europe 600 index SXXP, -1.07% stumbling after a Financial Times report that the European Central Bank is growing more concerned about exposure of European banks to Turkey’s woes. The Turkish lira USDTRY, +15.9654% was