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U.S. Treasury Yields Log Biggest Weekly Gains in Over a Month

02/19/2021 | 04:56pm EST

By Sebastian Pellejero

U.S. government-bond yields rose Friday, wrapping up the biggest weekly gain in over a month as investors bet that the U.S. economy will gather strength in the coming months.

The yield on the benchmark 10-year Treasury note finished Friday's session at 1.344%, according to Tradeweb. That's up from 1.286% at Thursday's close and marks the largest one-week gain since Jan. 8. The 30-year bond yield rose to 2.140% Friday -- the highest level in a year -- from 2.076% Thursday.

Gains in yields, which rise when bond prices fall, accelerated after new data released Friday showed business activity in the U.S. private sector remained robust in February and sales of previously owned homes rose last month. Investors tend to buy Treasurys when they are worried about the economy.

This week's moves marks a shift from recent trading. The yield on the 10-year note has traded notably higher this week than the 1%-to-1.2% range it traded over the past month. It jumped as high as 1.331% Wednesday following the release of better-than-expected retail sales data.

Many expect Treasury yields to move higher in 2021 due to factors including an increasing supply of Treasurys and forecasts for accelerating economic growth as coronavirus vaccines are more widely distributed. But this week's jump in yields came without any major catalyst, analysts said.

"The reflation trade has moved past fundamentals and has just become a large macro secular reflation trade that appears to ignore any of the standard cyclical inflation factors," said Jim Vogel, interest rates strategist at FHN Financial. With the so-called reflation trade, investors bet that the economy will rebound quickly, sparking higher inflation and rising yields.

The Biden administration continues to push ahead with plans for a $1.9 trillion stimulus package. On Thursday, Treasury Secretary Janet Yellen defended the proposed package, saying that a large fiscal stimulus was needed to counter the economic hit from the pandemic.

Higher government spending tends to push bond prices down and yields up by boosting economic growth and inflation, making the fixed payments from bonds less attractive to investors. Returns on longer-dated bonds have struggled so far in 2021, with the 30-year Treasury down 9.4% this year as of Thursday, according to Bank of America, the worst start since 2013.

For some investors, this week's rise in yields presented an attractive entry point, Mr. Vogel said. That makes it difficult for investors to gather how lasting the jump may be.

"It's too soon to expect any sort of retracement," he said. "The mistake with a momentum trade is trying to go against it too quickly without a catalyst."

Write to Sebastian Pellejero at sebastian.pellejero@wsj.com

(END) Dow Jones Newswires

02-19-21 1656ET

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