Bond Report: U.S. Treasury yields hold ground near 3-week lows


U.S. government bond yields traded little-changed Wednesday morning, with no major economic data on the agenda for the session and investors fixated on the Federal Reserve and its plans for confronting a post-COVID surge in inflation.

Investor will be watching for comments from Fed Vice Chairman for Supervision Randal Quarles, who is set to speak twice on Wednesday, headlined by a discussion on the economic outlook at the Hutchins Center on Fiscal and Monetary Policy Event, at 3 p.m. Eastern Time.

How are Treasurys trading?
  • The 10-year Treasury note

    was yielding 1.566%, virtually unchanged, compared against the benchmark’s level at 3 p.m. Eastern Time Tuesday.
  • The 30-year Treasury
    known as the long bond, was at 2.253%, down 0.6 basis point.
  • The 2-year Treasury note

    was yielding 0.141%, versus 0.143% a day ago.

Bond prices rise as yields fall.

On Tuesday, Treasury yields hit their lowest levels in about three weeks, after the 10-year and the 30-year debt yield declined for a fourth straight session.

What’s driving the debt market?

While Fed officials have reiterated their intention to maintain low interest rates and a bond buying program in recent weeks, some have suggested in recent days that they may be starting to consider the timing of a tapering of asset purchases, while trying to engineer a withdrawal of monetary support that doesn’t elicit a tantrum on Wall Street.

Fed No. 2 Richard Clarida said that policy makers can execute a “soft landing” for financial markets in reducing its asset purchases, speaking to Yahoo Finance Tuesday.

Some central banks around the world are beginning to trim their monetary accommodations, however. New Zealand’s central bank held interest rates at a record low of 0.25% on Wednesday and maintained its quantitative asset-purchase program, but implied that it could begin to raise interest rates in September.

Meanwhile, analysts are also watching the European Central Bank, which may begin discussions centered on slowing its emergency bond purchases.

German bond yields, for example, which hit a two-year low earlier this month, have been rising amid a sense that the ECB may ultimately need to take its foot off the monetary gas as the vaccine rollout helps to bolster the eurozone economy’s COVID recovery.

The 10-year German bond

stood at -0.202%, compared with a recent intraday low of around -0.7 on May 19.

Looking ahead, investors will watch for the impact of a $61 billion auction of 5-year U.S. Treasuries

on the complexion of the market.

What are strategists saying?

“The 5-yr auction is the sole major event on the bond calendar. On the UST, it is hovering at fair value, because it is 49bp steep to the rich 3-yr note. The corporate issuance drought (in relative terms) leaves large buyers little choice but to put in for more of the 5-yr than they would like because buying 5s is key to not falling further behind as the duration of fixed-income benchmarks extend again this month,” writes Jim Vogel, executive vp.m. at FHN Financial, in a research note.

Market Snapshot: U.S. stock futures edge higher with inflation worries in check and bond yields slipping

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