U.S. government debt yields fell Friday and notched weekly losses after the Federal Reserve signaled it could allow inflation to run above its target and geopolitical fears pushed investors toward safer asset classes.
The Federal Reserve's May meeting minutes released this week showed the central bank may be willing to let inflation run a little hotter than its two percent goal. A pivot to safer asset classes in the wake of geopolitical concerns has also helped send rates lower.
"I think we're facing a situation akin to that in 2008, when we had the Fed saying the economy was very strong," said Komal Sri-Kumar, president of Sri-Kumar Global Strategies. "Despite the fiscal stimulus from the tax cuts, the optimism is not reflected in the bond market."
"The other thing I would say concerns the Fed minutes – the Fed blinked. That was the beginning of the downturn this week," he added. "The Fed tried to make up for it up by saying that they would allow inflation to rise above its target ... [but] the Fed never admits to an error."
New orders for U.S.-made capital goods increased more than expected in April, hinting that business spending on equipment was accelerating after a slowdown toward the end of the first quarter.
The Commerce Department said Friday that orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, jumped 1 percent last month. Economists polled by Reuters had forecast core capital goods orders rising 0.7 percent last month.
Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, dropped 1.7 percent in April.