Bonds Mixed in Quiet Trade

U.S. Treasuries were mixed late Friday with the long end lower while the short end clung to minor gains in quiet activity. The market had ridden a midday safety rally higher on reports that China had grabbed a U.S. underwater drone in the South China Sea, but rolled back off the highs just after noon. Late comments from Federal Reserve officials indicated it may need to raise rates more than the three times implied by the Federal Open Market Committee statement Wednesday. Traders reported added support from pre-weekend and -holiday buying along with midday short-coverage.

CMEGroup reported a block buy of 5,000 five-year note futures at 12:09 p.m. ET. CME block trades are privately negotiated futures, options or combination transactions permitted to be executed apart from the public auction market. These trades are restricted to “Eligible Contract Participants.”

Richmond Federal Reserve President Jeffrey Lacker and St. Louis’ James Bullard both said that more than three rate hikes may be needed in 2017. Lacker spoke at an economic outlook event while Bullard spoke to the Wall Street Journal. Bullard added concern that the Fed could get behind the curve, saying if it does “get behind it’s really hard to calibrate.” He believes rising rates are a signal of the need for more tightening next year. Both officials noted that there are “uncertainties” ahead due to a new administration. Lacker told Reuters that he anticipates “at least some measure of fiscal stimulus” from the new government.