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Bond Report: 10-year Treasury yields tilt lower, with stocks set to face pressure to start the week

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U.S. government bond yields were edging lower Monday morning after the 30-year Treasury bond put in the largest weekly rate rise in about two months amid rising inflation fears.

Absent any major news in the early part of the week, investors will watch for minutes on Wednesday from the Federal Reserve’s late April meeting, which could provide some guidance on the central bank’s tolerance of rising inflation.

How are Treasurys performing?
  • Yields for the 10-year Treasury note
    TMUBMUSD10Y,
    1.636%

    were at 1.629%, compared with 1.639% on Friday at 3 p.m. Eastern Time.
  • 30-year Treasury yields
    TMUBMUSD30Y,
    2.352%

    were at 2.345%, versus 2.357%.
  • Yields for the 2-year Treasury note
    TMUBMUSD02Y,
    0.149%

    were at 0.145%, compared with 0.151% to end last week.

Last week, the 10-year Treasury yield rose 6.3 basis points, the long bond’s yield climbed 8.2 basis points, marking its steepest weekly yield climb since March 12. Meanwhile, the 2-year Treasury put in a weekly rise of 0.8 basis point, according to Dow Jones Market Data.

Bond prices rise as yields fall.

What’s driving fixed-income markets?

With inflation fears still front and center for markets, fixed-income investors may be focused on Wednesday’s release of Fed minutes, which could offer clues about the strategy around escalating pricing pressures.

Treasurys were seeing some buying early Monday, nudging yields down, as stocks in Europe and the U.S. looked to slump. Government debt may also be gaining some support from overseas investors, strategists say, with foreign investors viewing Treasurys as a compelling purchase set against rates for other sovereign bonds.

Last week, Treasury markets were briefly rattled by consumer inflation data that came in at its hottest since 2008, raising the specter of rising pricing pressures in the aftermath of the COVID pandemic. Inflation is viewed as a negative for Treasurys due the fixed value of government debt.

Looking ahead, Atlanta Fed President Raphael Bostic will speak alongside Fed Vice Chairman Richard Clarida at an Atlanta Fed banking conference at 10:05 a.m. Eastern.

What are strategists and traders saying?

“For Treasurys, in particular, there is still strong private demand; much of it from overseas as U.S. yields offer decent pick-up over local developed-country bonds, helped by the continued cheapness of dollar funding costs,” wrote Steven Barrow, head of G-10 strategy at Standard Bank, in a research note.

“Even last year’s tensions in the Treasury market around the time of the coronavirus outbreak failed to dim private sector demand for safe assets. And while there’s been some progress in places such as China and the eurozone, to make their bond markets more attractive for investors, the Treasury market still has a significant lead and perhaps that’s helping to insulate the market despite the fact that it is the U.S. where the inflation threat seems to be the greatest,” Barrow wrote.

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