The 10-year yield, which declines when prices rise, fell about 2.6 basis points to 1.4335% in Asia, its lowest since early March. The yield has fallen nearly 13 basis points for the week so far, the biggest weekly drop since last June.
Traders said short hedging was the engine of the bond rally, in a market that remains the beneficiary of huge Federal Reserve support, after Thursday’s US inflation data was dismissed as insufficiently frightening to encourage a rapid reduction in stimulus measures.
Year-over-year, consumer prices rose 5%, the largest increase in nearly 13 years, but strong contributions from price increases for airline tickets and used cars have were seen as unsustainable and in line with the Fed’s forecast for a temporary peak.
“The market is made up of short bonds and has been trading this stimulus theme since last September,” said Imre Speizer, market strategist at Westpac in New Zealand.
“Traders have kept old and stale positions and the market needs new ones to approve those positions. It didn’t approve it, so more of those traders just gave in,” he said.
Short positions in Treasuries hit their highest level since 2018, according to positioning data from JP Morgan last week.
Their unwinding flattened the yield curve to bring the spread between 10-year bonds and 2-year policy-sensitive bonds to 128.4 basis points, the narrowest in three months.
At the long end of the curve, 20-year yields also hit a three-month low in Asian trading on Friday, while 30-year yields fell to 2.123%, the lowest since late February.
Falling yields also pulled the US dollar down and put downward pressure on global yields, as Australian 10-year government bond yields fell 22 basis points for the week.