US Treasury yields were little changed on Friday, as investors weighed the latest government bond auction, a pullback in oil prices, and President Donald Trump's pledge to delay potential strikes against Iran until after next month's midterm elections.
The benchmark 10-year Treasury yield was flat at 5.26%, while the 30-year yield held at 5.63%. The two-year yield, which is more sensitive to Federal Reserve policy expectations, rose more than 2 basis points to 4.7827%.
The moves followed a retreat in yields during the previous session, after longer-dated borrowing costs reached their highest levels in decades earlier in the week. Investors are grappling with persistent inflation, substantial government borrowing needs, and the uncertain path of interest rates.
Bond Auction Provides Some Support
The Treasury market received a measure of support from Thursday's $22 billion sale of 30-year notes. Indirect bidders, a category that includes foreign central banks, purchased more than 72% of the offering, above the average of 68% across the previous 10 auctions. The Treasury Department also sold $39 billion in 10-year notes on Wednesday.
The latest auction results offered some relief for longer-dated government debt after a sharp selloff pushed yields to multi-decade highs. However, demand at a single auction does not resolve the broader concerns facing the bond market. Investors remain focused on the scale of US government deficits, persistent inflation, and the potential for additional Federal Reserve rate increases.
Federal Reserve Governor Christopher Waller said earlier that further rate hikes might be necessary to tackle inflation, which has remained above the central bank's 2% target for more than five years. Speaking at a Central Bank of Turkey forum in Istanbul, Waller also indicated that additional increases would not necessarily need to happen immediately.
Trump Comments Ease Oil Pressure
Energy prices moved lower after Trump said Thursday that the US would not launch strikes against Iran before next month's midterm elections. The remarks struck a more diplomatic tone amid signs of weakening public support for the conflict in the Middle East, which began on February 28.
West Texas Intermediate crude futures fell 0.79% to $90.77 a barrel, while Brent crude declined 0.99% to $103.25. Oil prices have risen sharply since the conflict began, adding to concerns that higher energy costs could keep inflation elevated and complicate the Federal Reserve's policy decisions. The prospect of further military action has also contributed to uncertainty across financial markets, particularly as investors assess the potential impact on energy supplies and global economic growth.
Dalio Warns of Growing Pressure on Equities
Against this backdrop, Ray Dalio warned that stocks could face increasing pressure from rising bond yields and weaker corporate cash flows, even if earnings continue to grow. The Bridgewater Associates founder told CNBC at the Milken Institute Asia Summit in Singapore that equities had so far weathered the global bond selloff because earnings growth had kept expected stock returns attractive relative to bonds.
But he cautioned that this cushion could diminish as financial conditions tighten. "We're in the part of the cycle where interest rates can rise without sending the equity market down because there's enough earnings growth and there's enough expected return," Dalio said. "But when that cushion comes down, then you're coming later into that cycle. So that's where we are."
His comments highlight a potential challenge for equity markets. Rising Treasury yields increase the returns investors can earn from government debt, potentially making stocks less attractive unless corporate earnings growth remains strong enough to compensate. Higher borrowing costs can also increase financing expenses for companies and weigh on future cash flows, particularly for businesses whose valuations depend heavily on earnings expected years into the future.
This article is for informational purposes only and does not constitute financial advice.
