2-year Treasury yield hits 2008 high

  • The yield on the short-term 2-year Treasury note hit a high of 2.295 percent, its highest level since Sept. 19, 2008.
  • Manufacturing output rose 1.2 percent, its largest gain since October, the Federal Reserve reported.
  • Despite the uptick on the final day of trading for the week, long-term yields remain off highs clinched earlier in the week following soft economic data.

U.S. government debt yields ticked upward Friday, with the 2-year Treasury note notching a nine-year high ahead of a Federal Open Market Committee meeting next week. The Federal Reserve is widely expected to hike rates at its monthly meeting.

The yield on the short-term 2-year Treasury note hit a high of 2.295 percent, its highest level since Sept. 19, 2008, when the note yielded as high as 2.313 percent.

Long-term debt rates, however, remained lower for the week following softer economic data and turmoil in Washington.

The yield on the benchmark 10-year Treasury note was higher at 2.846 percent at 3:52 p.m. ET, while the yield on the 30-year Treasury bond was higher at 3.081 percent. Bond yields move inversely to prices.

A mix of data supported yields Friday, including a larger-than-expected increase in industrial output. Production jumped 1.1 percent in February, the largest increase in four months after a weather-related rebound in construction and a better results from oil and mining.

Manufacturing output rose 1.2 percent, its largest gain since October, the Federal Reserve reported.

Despite the uptick on the final day of trading for the week, long-term yields remain off highs clinched earlier in the week following a week of soft economic data.

On Tuesday, the Labor Department reported that consumer prices rose 0.2 percent in February, matching Wall Street expectations and keeping fears of runaway inflation at bay. On a year-over-year basis, the consumer price index rose 2.2 percent, just ahead of the 2.1 percent increase reported in January.

Core CPI — which excludes volatile food and energy prices — was up 0.2 percent for the month and 1.8 percent annualized. The latest reading comes a month after the CPI posted its largest gain in four years of 0.5 percent, sparking fears of rising prices and a more aggressive Federal Reserve.

Symbol
Yield
 
Change
%Change
US 3-MO
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US 1-YR
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US 2-YR
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US 5-YR
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US 10-YR
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US 30-YR
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"Next week the Fed will likely raise rates, but the language from the FOMC may push yields in either direction," said Kevin Giddis, head of fixed income capital markets at Raymond James. "The longs will be looking for a softer forward stance, and the shorts will be looking for something that leads them towards 4 rate hikes in 2018."

Turbulence in Washington also weighed on market sentiment throughout the week as President Donald Trump made key changes to his cabinet and other top positions.

In a developing story Friday, Trump has reportedly decided to remove national security advisor H.R. McMaster from his administration, according to a report by The Washington Post. However, The White House has denied that any changes are planned within the National Security Council.

President Trump also fired the nation's top diplomat via Twitter earlier in the week, announcing that Secretary of State Rex Tillerson would be replaced by Mike Pompeo, the CIA director and former Tea Party congressman.

With all the political uncertainty and an FOMC meeting next week, Kathy Jones of the Schwab Center for Financial Research wasn't surprised investors were cautious heading into the weekend.

It's about "the geopolitical risks, what's the next shoe to drop in terms of policy from the Fed next week," the chief fixed-income strategist told CNBC. "I can see why people aren't taking big risks right now."

Concerns surrounding a potential trade war continue to dwell on investor sentiment. Tariffs on steel and aluminum imports are expected to come into effect in the coming weeks, after Trump signed two declarations last week. While Canada and Mexico are exempt from the deal, fears remain as investors worry that countries around the world may retaliate with their own tariffs.

—CNBC's Jacob Pramuk contributed to this report