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Bond Report: 10-year yield aims to add to highest rate since early July, 30-year touches 2%

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Treasury yields rose across the board Monday morning, with the long bond 30-year rising above a psychologically significant level at 2% and the benchmark 10-year note adding to its highest level since early July.

What Treasury yields are doing
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.495%

    yields 1.485%, versus 1.459% on Friday at 3 p.m. Eastern on Friday. Yield move in the opposite direction to prices.
  • The 30-year Treasury bond rate
    TMUBMUSD30Y,
    2.022%

    trades at 2.006%, compared with 1.987% at the end of last week.
  • The 2-year Treasury note yield
    TMUBMUSD02Y,
    0.279%

    is at 2-year Treasury 0.284%, compared with 0.274% on Friday.
  • On Friday, the 10-year Treasury note was at its highest rate since July, the 30-year was at its highest since Aug. 12 and the 2-year was at its highest since April 6 of 2020, according to Dow Jones Market Data.
What’s driving the market?

Treasury yields were advancing on Monday, continuing a climb that appeared to be catalyzed last week after the rate-setting Federal Open Market Committee indicated that it would soon be appropriate to wind down monthly COVID-era asset purchases of Treasurys and mortgage-backed securities that had served to liquefy troubled financial markets during the height of the market’s pandemic-driven woes back in the spring and summer of 2020.

On top of that, the Fed’s projections of interest rates, known as the dot plot, pointed to a sooner-than-expected rate increase for 2022.

On Monday, investors will be watching for comments from Chicago Fed President Charles Evans, who will speak at the 63rd National Association for Business Economics at 8 a.m. Eastern Time; New York Fed President John Williams will talk about the U.S. economic outlook to the Economic Club of New York at noon; while Fed Gov. Lael Brainard, who is due to speak about the economic outlook at the 63rd National Association for Business Economics annual meeting at 12:50 p.m. ET.

Meanwhile, politics will come front and center in the week, with Democratic leaders “trying to shepherd two complicated legislative packages,” The Wall Street Journal reports, including a roughly $1 trillion bipartisan infrastructure bill and a proposed $3.5 trillion budget bill. Failing to pass budget bill risks causing a government shutdown as concerns are growing about the U.S. debt ceiling.

Investors will be watching for a pair of auctions later in the session, including a $60 billion sale of 2-year notes and $61 billion of 5-years
TMUBMUSD05Y,
0.984%
.

Meanwhile, Germany’s 10-year debt
TMBMKDE-10Y,
-0.198%

was yielding minus 0.207%, compared with -0.227 on Friday, after Social Democrats led by Olaf Scholz captured the biggest share of the vote in a close German election, beating the center-right bloc led by outgoing Chancellor Angela Merkel. Reports indicate that Scholz’s party is likely to head a government, though while his conservative rival Armin Laschet remains determined to fight on, according to reports.

What analysts are saying
  • “Right now, it is all about government bond yields driving the FX markets. Yields are rising sharply, reflecting investors’ expectations about monetary tightening amid surging inflationary pressures,” wrote Fawad Razaqzada, market analyst at ThinkMarkets, in daily note. “If yields climb higher, this could weigh especially on the overstretched growth stocks in the technology sector, which have low dividend yields. Investors might prefer the relative safety of government debt and fixed coupon payments than buying severely overvalued stocks, just as the Fed starts to reduce the pace of its asset purchases,” wrote Razaqzada.
  • “The Treasury market continues to digest tapering in November pushing 10-year yields toward 1.5%. The key level to hold this week is 1.52% and a break above that should target 1.6%,” wrote Tom di Galoma, managing director of rates trading at Seaport Global Holdings, in a Monday note.

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