By Sebastian Pellejero and Sam Goldfarb 

Yields on most U.S. government bonds fell Monday, showing further signs of stabilizing after soaring to multi-month highs last week.

The yield on the benchmark 10-year Treasury note settled at 1.444%, according to Tradeweb, down from 1.459% at Friday's close.

Shorter-dated yields also headed lower, in a reversal from last week when investors bet that the Federal Reserve will start raising interest rates earlier than previously anticipated in response to an expected burst of economic growth and inflation.

The five-year yield fell to 0.708% Monday, from 0.775% Friday. Yields fall when bond prices rise.

Higher yields have helped some investors regain their appetite for Treasurys. While Treasury yields were expected to rise this year as the U.S. economy recovered, some analysts say the market's expectations for interest rates have moved too quickly, presenting an opportunity for investors to buy bonds at attractive levels.

Analysts at TD Securities recently recommended clients buy five-year Treasurys because of the pronounced move in yields. "We think the market's pricing of the first hike in March 2023 is too aggressive," they wrote in a Feb. 25 note. "But the biggest risk to the trade is if the Fed is unwilling/unable to allay taper [tantrum] fears."

Fed Chairman Jerome Powell in recent weeks has reiterated his stance that the central bank intends to keep its easy-money policies until substantial progress has been made toward its employment and inflation goals. The central bank is expected to continue to support the economy with near-zero interest rates and large-scale bond purchases to keep U.S. borrowing costs low and help the recovery.

Investors will be looking to coming Fed official appearances for clues about whether the central bank will push back against the recent rise in yields. Last week, European Central Bank officials reiterated promises to keep yields at low levels. On Sunday, the Reserve Bank of Australia said it made an unscheduled purchase Friday of around $2.4 billion of debt in response to rising rates.

The 10-year yield pared declines Monday morning after IHS Markit survey data showed U.S. manufacturing activity continued to expand at a solid pace in February, beating expectations from economists polled by The Wall Street Journal.

Yields on 20-year and 30-year U.S. Treasurys rose from Friday's levels. That marked a return to the trend from earlier this year when investors bet on a growing gap between shorter and longer-term yields, or what is known on Wall Street as a steeper yield curve.

The yield on the 30-year U.S. Treasury bond finished Monday's session at 2.219%, up from 2.187% Friday.

Write to Sebastian Pellejero at sebastian.pellejero@wsj.com and Sam Goldfarb at sam.goldfarb@wsj.com

 

(END) Dow Jones Newswires

March 01, 2021 17:21 ET (22:21 GMT)

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