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Bond Report: U.S. government bond yields see muted moves, but Germany’s bund yield hits 1-week high

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U.S. Treasury yields steadied Monday morning as markets for government debt wrestled with the outlook for the economy inside and outside the U.S. after last week ended with an April jobs reading that came in well below forecasts. 

A rise in eurozone yields, however, amid rising expectations that the Europe will begin to see solid economic improvement is putting some selling pressure on U.S. bonds and nudging yields up.

How are Treasurys performing?
  • The 10-year Treasury note yield
    TMUBMUSD10Y,
    1.578%

    was at 1.579%, little-changed from its 3 p.m. Eastern Friday close at 1.576%.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    2.289%

    rate was at 2.286%, virtually unchanged from the end of last week.
  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.144%

    yield was yielding 0.141%, compared with 0.143% Friday.

Bond yields rise as prices rises fall, and vice versa.

What’s driving Treasurys?

Yields rose Friday after data showed April nonfarm payrolls rose by 266,000, well below the consensus forecast for a gain of 1 million jobs.

U.S. rates were holding their ground to start the week but German bond yields were placing some upward pressure on Treasury rates.

Germany’s 10-year bund
TMBMKDE-10Y,
-0.208%

hit the highest level in about week at around negative 0.212%, compared with negative 0.234% Friday, with strategists attributing some of that move in yields on improving economic outlook for the eurozone economy and some lingering concerns that the European Central Bank might taper its bond-buying purchases.

The ECB at its last policy meeting in late April decided to keep policy unchanged, as expected, but investors have been keying on recent comments from ECB Governing Council member Martins Kazaks, who said the central bank could scale back its emergency bond-buying as early as June if the euro-area economy doesn’t deteriorate, Bloomberg News reported.

That said, ECB Chief Economist Philip Lane has publicly said that bond purchases could still be increased as needed.

The concerns come as investors in the U.S. have been anxious about the prospects for monetary policy in the U.S., anxieties that were quelled somewhat on Friday after the weaker-than-expected jobs report.

Looking ahead, investors will be awaiting a report on retail sales due on Wednesday.

Ahead of that report, Chicago Fed President Charles Evans is slated to speak at 8:30 a.m. Eastern on CNBC and then at a conference of business reporters at 2 p.m. 

Meanwhile, Dallas Fed President Robert Kaplan talks on Bloomberg TV at noon.

What are strategists saying?

“Naturally, stock valuations continue to keep many investors wary, although price-to-earnings ratios have fallen toward the low 20s on rising estimates,” wrote Christopher Smart, chief global strategist and head of the Barings Investment Institute.

“Bond yields may be capped for now as global investors consider 1.6% on U.S. Treasuries a good deal when Japanese government bonds pay nothing and German bunds are still negative,” he wrote.

“But the broader question coming into view remains where sustainable growth rates will settle,” the strategist wrote.

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