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U.S. 10-year Treasury rates on Monday retreated, and prices edged higher, after yields momentarily climbed near to a one-year high.
Early moves appeared to be sparked by investors focusing on progress toward another large round of fiscal aid to help combat the harmful economic effects of COVID-19.
However, the rise in rates also helped encourage some buying in longer-dated debt by investors seeking richer coupons. Analysts also attributed “sellers’ fatigue” and comments from a Federal Reserve speaker as causing some late-session buying in Treasurys.
How are Treasurys performing?
- The 10-year Treasury note yield TMUBMUSD10Y, 1.167% was at 1.159%, shedding 0.9 basis point, after finishing at its highest level since last March on Friday.
- The 30-year bond yield TMUBMUSD30Y, 1.956% slipped to 1.943%, off 3 basis points, pulling back after touching an intraday high above 2% that has capped the long-dated maturity since last February.
- The 2-year Treasury note rate BX:TMUBMUSD02Y was at 0.111%, picking up 0.6 basis point.
Bond yields fall as prices rise.
What’s driving government debt?
Yields for government bonds rose as investors anticipated that U.S. lawmakers will be inspired to spend more money to help stem economic deterioration from the spread of the coronavirus that causes COVID-19.
Friday’s weaker-than-expected January jobs report also was seen enhancing prospects for greater spending, after the U.S. regained a meager 49,000 jobs in January as many states reimposed business restrictions to combat the pandemic and restaurants and hotels had to lay off workers.
So far, Democrats have taken steps that would allow the Senate to vote on President Joe Biden’s relief plan without Republican support in the Senate.
Read: Individual investors are back—here’s what it means for the stock market
On top of that, Treasury Secretary Janet Yellen on Sunday said Biden’s plan could fuel strong enough growth to return the U.S. to full employment by next year.
Signs of successful COVID vaccine rollouts have encouraged a degree of selling of debt and reduction in prices, even while some investors have been using rises in yields to scoop up Treasurys, experts said.
Buyers also were emboldened after Cleveland Federal Reserve President Loretta Mester emphasized Monday that monetary policy will stay accommodative for a “very long time,” during a virtual discussion organized by the Toledo Rotary Club. She also said that Fed’s typical target of 2% annual inflation may take a long time to achieve.
Investors are gearing up tomorrow for an auction of $58 billion in three-year bills TMUBMUSD03Y, 0.183%, kicking off a 126 billion in debt, including 10-year and 30-year auctions on Wednesday and Thursday.
What are analysts saying?
“Long-term prognosis, early onset sellers’ fatigue may ultimately limit the degree to which the Treasury Department’s net borrowing needs can recast rates higher, leaving investors to concede an environment with elevated breakevens and inflation expectations can persist as the Fed’s actions lead to asset price inflation over near-term demand driven elevated consumer prices,” wrote fixed-income analysts Ian Lyngen and Ben Jeffery at BMO Capital Markets.
“The next bearish target for the [30-year bond yield] will be the hurdle of a handle change now that prior support has been broken. Beyond there we will look to 2.157%, which was yield high from February 2020, although with momentum oversold, there is a risk we see some retracement,” the analysts wrote.
