By Sebastian Pellejero 

U.S. government bonds showed signs of stabilizing Friday, with yields swinging between small gains and declines after rising sharply a day earlier.

The yield on the benchmark 10-year Treasury note recently traded around 1.501%, according to Tradeweb, down from 1.513% at Thursday's close.

Yields, which rise when bond prices fall, soared on Thursday as a weekslong selloff intensified -- fueled by bets that the Federal Reserve will start raising interest rates earlier than previously expected in response to what investors widely expect to be a burst of economic growth and inflation later this year.

The 10-year yield logged its largest one-day gain since Nov. 9 during Thursday's session to finish at its highest closing level in a year. The five-year yield, which is more sensitive to the near-term outlook for interest rates, experienced its largest one-day gain in more than 10 years.

Selling, though, abated Friday, as the higher yields attracted buyers.

While many investors expected the 10-year yield to move higher in 2021, the jump to 1.5% from around 1% in a matter of weeks is raising some concerns. While Fed officials have said that the yield's climb toward pre-pandemic levels marks a return to normalcy, some investors worry their lack of concern could spur more selling.

"Thursday's rate move shows some signs of the dysfunction that prompted Fed action in March [2020]," wrote Bank of America analysts in a Friday note. "However, the Fed will be challenged to push back aggressively on the move, since, so far, they have described it as reflecting 'healthy' factors."

After falling overnight, yields did tick higher early Friday after the Commerce Department released new data showing U.S. household income jumped 10% in January and consumer spending rose 2.4%, suggesting the economy is primed for a burst in growth this year.

Investors tend to sell Treasurys when they expect faster growth and inflation, which lowers the value of bonds' fixed payments and can prompt the Fed to raise interest rates. Their optimism has been lifted recently by improving economic data, the promise of more government spending and the expanding distribution of coronavirus vaccines.

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

(END) Dow Jones Newswires

February 26, 2021 12:27 ET (17:27 GMT)

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