2- through 30-year Treasury yields end higher after remarks by Fed’s Mester

What happened

• The yield on the 2-year Treasury
  BX:TMUBMUSD02Y
  was up than 1 basis point at 4.866% versus 4.857% on Thursday. It’s down 18.8 basis points this week.

• The yield on the 10-year Treasury
  BX:TMUBMUSD10Y
  was up 8.3 basis points at 4.173% from 4.090% as Thursday afternoon. The rate fell 6.6 basis points for the week.

• The yield on the 30-year Treasury
  BX:TMUBMUSD30Y
  rose 8.2 basis points to 4.285% from 4.203% late Thursday. It fell less than 1 basis point this week.

What drove markets

In remarks made at a conference in Europe on Friday, Mester, president of the Cleveland Fed, said inflation “remains too high” despite some progress. Fed officials are trying to determine whether the current level of the fed funds rate target “is sufficiently restrictive and how long policy will need to remain restrictive to keep inflation moving down,” she said.

Within the Treasury market, her remarks overshadowed Friday’s official jobs data, which investors and traders read as supporting the case for a cooling labor market. Though the U.S. created a higher-than-expected 187,000 new jobs in August, the unemployment rate rose to 3.8% and job gains were much weaker than originally reported for July and June.

Also on Friday, ISM’s manufacturing PMI rose to 47.6% in August from 46.4% in the prior month.

What analysts are saying

“Our base case view is that by the time of the November FOMC meeting, the economy will have shown clear signs of slowing, leading the Fed to finally put an end to its sharpest rate-hike cycle since the 1980s. We expect U.S. Treasury yields to fall by year-end as both U.S. growth and inflation moderate,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.