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Treasuries Move Sharply Lower Amid Concerns About More Aggressive Fed

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Treasuries showed a substantial move to the downside during trading on Friday, extending the downward trend seen over the past couple weeks.

Bond prices fell sharply in morning trading and remained firmly negative throughout the afternoon. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 15.1 basis points to 2.492 percent.

With another significant increase on the day, the ten-year yield ended the session as its highest closing level since May 2019.

The continued weakness among treasuries came as recent economic data and comments from Federal Reserve officials have raised concerns the central bank may raise interest rates more aggressively than previously expected.

Chicago Fed President Charles Evans said Thursday he’s “comfortable” with raising rates in quarter-point increments, while being “open” to a 50 basis point move if needed.

Evans expects six more 25 basis point increases in the central bank’s policy interest rate by the end of the year and three more next year, putting the Fed funds rate in a range of 2.75-3 percent by the end of 2023.

CME Group’s FedWatch Tool is currently indicating a 72.7 percent chance the Fed will raise interest rates by 50 basis points in May and a 27.3 percent chance of a 25 basis point rate hike.

On the U.S. economic front, the National Association of Realtors released a report showing pending home sales unexpectedly saw further downside in the month of February.

NAR said its pending home sales index tumbled by 4.1 percent to 104.9 in February after plunging by 5.8 percent to a revised 109.4 in January. The continued decrease came as a surprise to economists, who had expected the index to rebound by 1.0 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Meanwhile, revised data released by the University of Michigan showed consumer sentiment in the U.S. fell by more than initially estimated in the month of March.

The report showed the consumer sentiment index for March was downwardly revised to 59.4 from the preliminary reading of 59.7. Economists had expected the index to be unrevised.

With the unexpected downward revision, the consumer sentiment was at its lowest level since hitting 55.8 in August of 2011.

The Labor Department’s closely watched monthly jobs report is likely to be in the spotlight next week, while traders are also likely to keep an eye on a report on personal income and spending.

Bond trading may also be impacted by reaction to the results of the Treasury Department’s auctions of two-year, five-year and seven-year notes.

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