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Bond Report: 10-year Treasury yield pushes back above 1.5%

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A selloff in U.S. government debt, sparked by growing inflation fears, continued to push up yields early Tuesday, with the 10-year Treasury rising above 1.5% after briefly breaching the psychologically important level in the previous session.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.534%

    rose to 1.521%, up from 1.482% at 3 p.m. Eastern on Monday.
  • The 2-year Treasury note yield
    TMUBMUSD02Y,
    0.316%

    was 0.313%, compared with 0.28% on Monday afternoon.
  • The yield on the 30-year Treasury bond
    TMUBMUSD30Y,
    2.059%

    rose to 2.049%, compared with 1.994% on Monday.
What’s driving the market?

Treasury yields have been advancing since the middle of last week, following a Federal Reserve meeting that saw policy makers indicate they could formally lay out a plan to begin tapering monthly bond purchases as early as November, while also moving up forecasts for subsequent interest rate increases.

Analysts said a sharp rise in energy prices was helping to fuel a global rise in yields, with crude prices
CL00,
+1.06%

BRN00,
+0.85%

jumping to three-year highs and natural-gas prices soaring. Energy shortages have led to factory disruptions in Asia and Europe, which could squeeze supplies, feeding into inflationary pressures.

Also Republican senators blocked a bill Monday night in Congress that would allow the U.S. government to keep operating beyond the end of the fiscal year on Thursday, and lift the federal debt ceiling. Democrats pledged to try again.

The prospect of a government shutdown and uncertainty around the federal debt ceiling come as the parties wrangle over President Joe Biden’s multi-trillion dollar infrastructure and social spending plans.

Read: What happens if the U.S. defaults on its debt?

Fed Chairman Jerome Powell is scheduled to appear before the Senate Banking Committee at 10 a.m. Eastern Tuesday, with U.S. Treasury Secretary Janet Yellen, on the government’s response to the coronavirus pandemic. Other Fed speakers slated to speak Tuesday include Gov. Michelle Bowman, Atlanta Fed Gov. Raphael Bostic and St. Louis Fed President James Bullard.

Data due on Tuesday include U.S. August figures on international trade in goods, due at 8:30 a.m. The S&P Case-Shiller home price index is set for 9 a.m., while a September reading on consumer confidence is scheduled for 10 a.m.

What are analysts saying?

“The U.S. rates market consensus is firmly that tapering starts in November and a first Fed hike is priced in by the end of 2022, but thereafter, the implied trajectory isn’t vertiginous and with Brent above $80 (a barrel), there’s plenty of inflation-worrying left for the markets to do,” said Kit Juckes, global macro strategist at Société Générale, in a note.

“Bond yield forecasters almost always look for yields to go back up in due course, but that just means lots of people are still jumping on this bandwagon, and they’ll keep on coming until the move in yields turns risk sentiment around,” he said.

Market Snapshot: Nasdaq futures retreat as bond yields back up and energy prices surge

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