NEW YORK (Aug 21): US Treasury yields rose modestly on Friday, on track to end an eventful week with another round of selling after data showed a strong expansion this month in the US services sector.

The 2-year Treasury yield was up 3.8 basis points at 4.223% in early trading and the 10-year yield was up 2.6 basis points at 4.724%.

The yield on the 30-year long bond, where the week's major dramas largely played out, was up 3 basis points to 5.266%, putting it below the decade-plus highs it reached this week but above the levels following Treasury Secretary Scott Bessent's surprise buyback announcement on Wednesday and his jawboning a day later.

The strongest growth in the US services sector in nearly two years powered a sharp acceleration in overall business activity in August, offsetting a slowdown in the manufacturing sector, which was restrained by reduced stock building and supply disruptions from the US-Israeli war with Iran.

S&P Global said on Friday its flash services Purchasing Managers' Index rose to 56.8, the highest level since December 2024, from 54.6 in July. That jump drove its Composite Output Index up to 56, the highest reading since April 2022, from 54.5 last month.

Those PMI surveys suggest that nearly two-thirds of the way through the current third quarter, overall US economic growth is on track to double the second quarter's 1.5% annualized expansion rate. The strong performance will add to concerns about gathering US economic momentum pushing price levels higher at a time when investors are increasingly worried about the fiscal outlook and the prospect that inflation will remain elevated.

Earlier on Friday, the S&P Global Eurozone Manufacturing PMI rose to a 54-month high and employment increased for the first time in three years.

There is little major economic data on the slate in the coming week, beyond the release of US GDP and Personal Consumption Expenditures data early on Wednesday and Nvidia earnings that evening. Federal Reserve Chairman Kevin Warsh is expected to deliver the keynote speech next Friday morning at the US central bank's annual Jackson Hole conference in Wyoming.

Analysts, as a result, were left to size up the vibes in a market that has been anxious about the prospect of significantly higher rates yet also resilient in the face of pullbacks.

"Taking a step back, deficit concerns have once again become a focal point of the macro narrative, helping underpin the bearishness in the Treasury market," said Ian Lyngen, head of US rates strategy at BMO Capital Markets.

Lyngen noted that the cumulative US budget deficit for fiscal year 2026 is the highest since 2021, the national debt surpassed US$40 trillion this week and long-term borrowing costs are pushing federal interest payments on the debt higher.

"It's with this backdrop that 30-year yields are trading at the highest levels since the GFC (Global Financial Crisis), despite Bessent's remark that, 'There's nothing magic about the 40-trillion number. We can grow our way out of that.'"

Sentiment in US markets, however, remains mostly bullish. US equities indexes took a hit on Thursday, with the Dow Jones Industrial Average falling more than 1%. But the decline left the blue-chip index just 3% below its August 5 record close and about 3.6% below its record intraday high, which was also reached that day. It was up 0.6% early on Friday.

"We're all too cognizant that dramatic and unanticipated moves have a tendency to occur in the late-summer trading period," Lyngen said. "It's with a wary eye that we'll be on headline watch this August Friday as the weekend can't get here soon enough."

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