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Bond Report: Treasury yields steady as U.S. stocks seen rising

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U.S. Treasury yields were edging higher Tuesday, with appetite for bonds cooling as stocks appeared to catch a bid.

Investors will be attuned to comments from Federal Reserve speakers and other prominent officials as markets wrestle with corporate results and reopening the economy from the COVID pandemic.

How are Treasuries trading?
  • The 10-year Treasury note yields
    TMUBMUSD10Y,
    1.637%

    1.645%, up 0.6 basis point from yesterday’s levels at 3 p.m. Eastern Time.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    2.360%
    ,
    known as the long bond, was yielding 2.366%, versus 2.353%.
  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.157%

    yielded 0.153%, virtually unchanged from trade on Monday

Bond prices fall as yields rise and vice versa.

What’s driving the market?

Bets on inflation are coloring the Treasury market as the U.S.’s move in the recovery phase of the pandemic deepens.

Evidence of a better economy following the coronavirus outbreak that gripped the country early last year has supported the view that the Federal Reserve will raise benchmark interest rates from a 0%-0.25% range earlier than the Fed’s own projections for a move by around 2024.

Traders are positioning for higher yields, as bond prices fall, even if Tuesday’s moves in Treasuries appeared to be relatively muted.

Meanwhile, data from the U.S. Treasury showed that foreign investors have mostly kept rate moves in check, buying a record amount of U.S. government debt in March. Foreign investors bought $118.87 billion in Treasuries in March.

However, foreign holdings of Treasuries overall declined to $7.028 trillion in March from $7.098 trillion in the previous month, representing the third straight monthly decline.

In economic reports, investors will watch for a reading of building permits and the number of housing projects started in April, due out at 8:30 a.m. Eastern Time.

Investors also may be looking for news from Lawrence Summers, former secretary of the Treasury under Bill Clinton and director of the National Economic Council under Barack Obama, who is set to speak at 10:05 a.m. Eastern at the second day at a conference hosted by the Atlanta Federal Reserve.

Dallas Fed Robert Kaplan and Atlanta Fed President Bostic will speak at the same conference at 11:05 a.m.

On Monday, Bostic said it would take a “couple of months” to understand the inflation dynamics that are under way as the economy is recovering from the pandemic. The Fed’s No. 2, Richard Clarida, said the economy hasn’t hit the benchmark of “substantial further progress” needed for the U.S. central bank to begin scaling back asset purchases.

What are fixed-income strategists saying?

“The Fed is really driving this dovish message hard. Overall, the market appears to be taking the message onboard, which is offering support to equities and dragging on the U.S. dollar,” wrote Sophie Griffiths, market analyst at Oanda, in a Tuesday research note.

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