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U.S. government bonds saw rates climb Monday to start a holiday-shortened week, after the sharpest weekly yield drop for long-dated debt in months.
Debt investors have been weighing the balance of risks of rising cases of COVID-19 and new social-distancing restrictions against positive updates effective experimental cures and therapies for the deadly infection.
U.S. markets will be closed Thursday in observance of Thanksgiving and the bond market will close an hour early on Friday, at 2 p.m. Eastern.
How are Treasurys performing?
- The 10-year Treasury note TMUBMUSD10Y, 0.854% yielded 0.857%, up 2.9 basis points.
- 30-year Treasury bonds TMUBMUSD30Y, 1.553%, known as long bonds, were yielding 1.562%, up 3.1 basis points.
- The short-dated two-year Treasury note TMUBMUSD02Y, 0.161% was at 0.163%, edging up 0.3 basis points.
Bond prices fall as yields rise.
Last week, the 10-year note shed 8.28 basis points to mark the largest weekly drop since Aug. 21; the 30-year long bond lost 11.8 basis points for its sharpest weekly yield slump since June 12; the two-year note gave up 16.1 basis points for its firmest weekly rate fall since Sept. 11, Dow Jones Market data show.
What’s driving the bond market?
On Monday, AstraZeneca joined a string of drugmakers offering a sanguine outlook for COVID-19 cures, nudging investors into assets considered risky over the perceived safety of U.S. government bonds.
AstraZeneca AZN, -1.08%, along with the University of Oxford, reported that its vaccine candidate for the disease derived from the novel strain of coronavirus, SARS-CoV-2, showed an average efficacy of 70%, making it the most recent of a trio of pharmaceutical groups in recent weeks, including Pfizer PFE, -0.49% and Moderna MRNA, +3.50% and players to report positive late-stage results.
The AstraZeneca vaccine candidate was found to have an efficacy of 90% in certain conditions.
Over the weekend, Dr. Moncef Slaoui, head of “Operation Warp Speed,” the U.S. coronavirus vaccine program, said plans are to ship vaccines to states within 24 hours of expected emergency-use approval from the Food and Drug Administration.
On Sunday, Slaoui told CNN he expects vaccinations would begin on the second day after approval, Dec. 12.
Growing hope around effective drugs to form a defensive wall against COVID-19 has helped to draw investors into fresh bets on equity markets and away from bonds. But concerns that the viral outbreak is entering a new and deadlier phase that could slam the economy anew has limited selling in bonds, keeping yields anchored relatively lower.
Meanwhile, a series of auctions on the day were mixed and didn’t have a demonstrable impact on Treasury trade. Some $57 billion of five-year notes were sold to lackluster interest at 1 p.m. Eastern. The sale had a “tail” of 0.6 basis points, usually a sign of weak demand. The tail is the gap between the highest yield the Treasury sold in the auction and the yield before the auction began.
An auction of two-year bills, however, went relatively well, dealers said, with a bid-to-cover ratio — which measures the amount of bids relative to the amount of supply available in Treasury auctions — at 2.71 times, marking the best level since August, one strategist said.
A surge in oil markets and energy shares was also was in focus in bond markets because a rise in volatile energy prices can augur an eventual climb in inflation, anathema to bonds. Crude-oil prices CL.1, +1.03% trading on the New York Mercantile Exchange traded up more than 1% on Monday, while the Energy Select Sector SPDR Fund XLE, +7.06%, which is one popular way for investors to gain exposure to energy stocks, was up 6.9%, marking its highest daily gain in about two weeks.
Investors also kept one eye on politics. President-elect Joe Biden intends to nominate former Fed Chairwoman Janet Yellen to be Treasury secretary, according to The Wall Street Journal, marking the first woman in that role, should she officially be selected and pass confirmation in the Senate. Antony Blinken is Biden’s pick to serve as secretary of state, according to reports. Those moves comes even as Trump continued efforts to contest the outcome of the Nov. 3 election, as his legal options narrowed.
In economic reports, the Chicago Fed national activity index rose to 0.83 in October from a revised 0.32 in prior month. Separately, purchasing managers survey data from IHS Market showed a rise in the services index to 57.7 from 56.9 from the previous month and a rise in manufacturing to 56.7 from 53.4 in November. A reading of 50 or better indicates expanding activity
What are fixed-income participants saying?
“The vaccine-related optimism continues to be offset by the realities of the ‘dark winter’ of pandemic discontent. Needless to say, these dueling influences will be thematic for the balance of 2020 and into 2021; even as the first vaccinations are scheduled to occur in mid-December,” wrote Ian Lyngen and Ben Jeffery, fixed-income analysts at BMO Capital Markets, in a note.
