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Bond Report: Treasury yields edge higher but mostly stand pat in holiday-shortened week

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Longer-dated U.S. Treasury yields were edging higher Friday morning as stocks looked to snap a four day losing skid, and ahead of data on August wholesale inflation that could influence activity in financial markets.

However, the holiday-abbreviated stretch of trading—U.S. markets were closed on Monday in observance of Labor Day—has brought yields for government debt full circle, little changed from the end of last week.

What yields are doing
  • The 10-year Treasury note yields
    TMUBMUSD10Y,
    1.322%

    1.323%, versus 1.300% on Thursday at 3 p.m. Eastern Time.
  • The 30-year Treasury bond rate
    TMUBMUSD30Y,
    1.920%

    was at 1.918%, after trading at 1.898% a day ago.
  • The 2-year Treasury note yields
    TMUBMUSD02Y,
    0.224%

    0.213%, little changed from 0.214% on Thursday.
What’s driving the market?

Treasury yields continue to maintain rangebound trade, with investors watching for a report on producer prices for August, which could show a seventh straight increase in wholesale inflation amid the recovery from the COVID pandemic.

Some analysts have pointed to the producer-price index, or PPI, as potentially one of the more important data after last Friday’s August jobs report. Economists polled by The Wall Street Journal on average are expecting a rise in the PPI last month of 0.6%, versus 1% in the prior month.

Meanwhile, a recent report from WSJ indicates that Federal Reserve officials could begin setting the stage for the tapering of its monthly bond purchase program of $120 billion in Treasurys and mortgage-backed securities at its Sept. 21-22 meeting, with an announcement of its plans at the following meeting in early November.

The report comes as a number of voting members of the Fed’s policy committee voice support for rolling back the monetary accommodation that provided liquidity to markets during the worst of the pandemic.

On Thursday, Federal Reserve Gov. Michelle Bowman said the labor market was “very close” to the hurdle needed for the central bank to start slowing its bond purchases.

Meanwhile, economists are predicting that the Fed will begin raising interest rates, which currently stand at a range between 0% and 0.25%, next year, according to a survey by the Financial Times’ Initiative on Global Markets at the University of Chicago Booth School of Business. An increase in benchmark interest rates next year would be far sooner than the 2023 projections that Fed officials penciled in back in the summer.

On Thursday, markets appeared to take a momentary leg higher after President Biden announced stricter vaccine and testing mandates for federal workers, but the gains for stocks were short-lived and markets ended lower as yields slipped.

What analysts are saying

“Near-term upside for US growth momentum and more hawkish Fed pricing should lift bond yields,” writes Sebastian Raedler, investment strategist at BofA Global Research, in a note published on Friday. “We think the loss of US growth momentum since mid-Q2 has been a key driver of the 40bps pull-back in the US bond yield from its March peak, with rates closely tracking the decline in US macro surprises,” he wrote. 

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