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Yields for benchmark bonds on Monday compressed, but were off the lows, as investors continued to position following a Federal Reserve update last week that was interpreted as more inclined to end pandemic-era accommodations sooner than later, even as the central bank views surging pricing pressures as likely to be short-lived.
How Treasurys are performing?
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The 10-year Treasury note yield
TMUBMUSD10Y,
1.498%
was at 1.437%, but had hit an overnight low of around 1.35%, according to FactSet data. It finished Friday trade at 3 p.m. Eastern Time at 1.449%. Treasury yields fall as prices rise. -
The 30-year Treasury bond
TMUBMUSD30Y,
2.092%
was yielding 2.026%, but had touched a session low of about 1.930%. The so-called long bond’s yield was at 2.027% to end last week. - The 2-year note was yielding 0.258%, but had touched 0.198% overnight. Rates were at 0.256% on Friday.
On Friday, the 30-year bond saw its largest one-week decline since June 12, 2020, while the 2-year registered its steepest weekly climb since Oct. 11, 2019, according to data compiled by Dow Jones Market Data.
Fixed-income drivers
The overnight action in bonds is leading to some headscratching in fixed-income markets. The moves in Treasurys briefly pushed the yield curve, the rate differential between long-term and shorter-term bonds, to its narrowest since January or February for the 10-year and the 30-year.
Read: Markets are sending ‘peculiar’ signals as Fed changes tune — here’s what they mean
In theory, the Fed’s stance that post-COVID inflation pressures should be short-lived and the expectation that the Fed could begin raising rates as early as late 2022 or 2023, should be nudging yields higher.
But that hasn’t been the case.
St. Louis Federal Reserve President James Bullard is scheduled to speak at the Official Monetary and Financial Institutions Forum at 9:30 a.m. Eastern.
On Friday, Bullard, in interview with CNBC, suggested that he would be inclined to see the Fed lift interest rates by late 2022 and said that Fed Chairman Jerome Powell has effectively opened the door to tapering the central bank’s monthly purchases of $120 billion in Treasurys and mortgage-backed securities.
Along with Bullard, Dallas Fed President Rob Kaplan and Philadelphia Fed President Patrick Harker also will speak at the OMFIF event.
Later Monday, New York Fed President John Williams will deliver keynote remarks at midsize bank conference at 3 p.m.
What strategists are saying
“The overseas open last night was this side of chaotic, righting itself (mostly) when trading shifted to London,” wrote Jim Vogel, executive vice president at FHN Financial, in a note.
“Friday’s market reaction to the first regional Fed speaker was primed by questions whether officials might try to ‘reexplain’ Wednesday’s news to calm the global reaction — something the Fed has done in the past,” he added.
“When…Bullard amplified the hawkish tone, the UST yield curve took another step flatter. Just due to habit, traders may compound flattening and pressure on equities if this week’s Fed calendar doesn’t produce a more balanced view on taper and the horizon for rates,” Vogel wrote.
