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Market Snapshot: 10-year Treasury yield slides back below 1.50% on revived omicron fears

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Investors jumped back into Treasurys early Tuesday, driving down yields, as they reassessed threats posed by the omicron variant of the coronavirus following downbeat comments from the chief executive of vaccine maker Moderna Inc.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.437%

    tumbled to 1.432%, down from 1.529% at 3 p.m. Eastern on Monday. Yields and debt prices move in opposite directions.
  • The 2-year Treasury yield
    TMUBMUSD02Y,
    0.468%

    fell to 0.461% from 0.508% Monday afternoon.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    1.810%

    yielded 1.82%, down from 1.879% late Monday.
What’s driving the market?

Investors were again seeking safety in Treasurys after Moderna
MRNA,
+11.80%

Chief Executive Stephane Bancel told the Financial Times that existing vaccines will likely be less effective against the omicron variant discovered late last week in southern Africa.

“I think it’s going to be a material drop” in effectiveness, he said. “I just don’t know how much because we need to wait for the data. But all the scientists I’ve talked to…are like, ‘This is not going to be good’.”

Key Words: ‘This is not going to be good’ — Moderna CEO on what scientists are telling him about the omicron coronavirus variant

Treasury yields plunged in a holiday-shortened session Friday, posting their biggest one-day drops since the early days of the pandemic in 2020, following the discovery of the omicron variant. Investors sought safety in government paper as stocks plunged, with the Dow Jones Industrial Average
DJIA,
+0.68%

and S&P 500
SPX,
+1.32%

seeing their biggest falls of 2021, while the U.S. oil benchmark
CL00,
-3.23%

plunged 13%.

Stocks and commodities bounced on Monday, with yields taking back a chunk of Friday’s slide. U.S. stock futures were under renewed pressure Tuesday.

See: Only 10% of investors see omicron as biggest threat to financial markets by year-end: flash poll

Investors will pay close attention to remarks by Federal Reserve Chairman Jerome Powell when he testifies alongside Treasury Secretary Janet Yellen before the Senate Banking Committee at 10 a.m. Eastern. In prepared testimony released late Monday, Powell said the omicron variant poses downside risks to the economy and adds to uncertainty over inflation.

Fed watchers are divided over what the variant will mean for Fed policy. Before its discovery, investors had been increasingly looking for the Fed to speed up the tapering of its monthly bond purchases when policy makers meet in December. Some contend the emergence of the omicron variant will likely result in a wait-and-see approach.

What are analysts saying?

Powell, in his prepared testimony, said the variant “poses a downside risk to economic activity and labor markets but also implicitly an upside risk to inflation through supply chain disruptions,” said Elsa Lignos, global head of FX strategy at RBC Capital Markets, in a note. “We think the combination may keep faster taper on the table despite the downside economic risks from the new variant.”

“We continue to advise to err on the side of caution with respect to the developing omicron story. This morning’s FT headline clearly proved some remaining sensitivity to the issue although market moves are already smaller in absolute terms” compared with Friday, wrote analysts at KBC Bank in Brussels, in a note.

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