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U.S. government bond yields headed lower Wednesday morning, ahead a report on private sector employment, with quarter-end and month-end positioning being blamed for some of the moves in Treasurys.
However, some analysts were also saying that lower Treasury yields may indicate that fixed-income investors are not betting on a sustained period of inflation above the Federal Reserve’s 2% annual target, even as evidence has suggested that pricing pressures are percolating in the economic recovery from the COVID-19 pandemic.
How Treasurys are performing
-
The 10-year Treasury note yield
TMUBMUSD10Y,
1.456%
was at 1.455%, compared with 1.479% at 3 p.m. Eastern Time on Tuesday. -
The 30-year Treasury bond rate
TMUBMUSD30Y,
2.064%
was at 2.066%, versus 2.096% a day ago. -
The 2-year Treasury note
TMUBMUSD02Y,
0.246%
yielded 0.243%, compared with 0.250% on Tuesday.
Fixed-income drivers
Investors will be watching to see if the decline in government yields can persist in the second half of 2021.
Analysts have expressed some uncertainty about what the slippage in yields is signaling, but some have suggested that it implies fixed-income investors are doubtful about the strength of the economic rebound from COVID.
Earlier analysts had predicted that benchmark 10-year Treasury yields would climb toward 2% by now, as reports show inflation picking up steam to historic levels, amid supply-chain bottlenecks and growing consumer demand in the aftermath of the pandemic.
However, after climbing to around 1.7% in March, 10-year Treasurys have been mostly skidding lower to the 1.40-1.50% of recent weeks.
The Wall Street Journal wrote that yields on conventional and inflation-protected Treasurys reflect expectations for inflation that aren’t as buoyant as they were in March. Waning fiscal stimulus has been partly blamed for the perception of a slightly less rosy economic outlook, some argue.
The economic jolt from trillions of dollars worth of fiscal stimulus from Washington, including extra unemployment benefits and lump-sum payments to U.S. households, already has begun to fade from peak levels.
Treasurys have also been supported by foreign investors, hunting for richer yields, analysts have said.
Looking ahead, markets are awaiting a reading of private-sector payrolls for June. The Automatic Data Processing Inc.’s June report is due at 8: 15 a.m. Eastern Time.
Separately, investors will watch for a reading of manufacturing activity in the Chicago area, the Chicago purchasing managers index for June, due at 9:45 a.m.
A report on pending home sales due at 10 a.m., will be in focus, as well, coming a day after the S&P CoreLogic Case-Shiller National Home Price Index, showed that prices surged at their fastest pace ever in April, as buyers competed for a limited number of homes.
What strategists are saying
“The 10-year Treasury yield has taken a tumble this week, falling towards 1.47%, dragged lower by a smaller-than-expected increase in the core PCE price index on Friday,” wrote Raffi Boyadjian, senior investment analyst at XM, in a daily note.
“The drop in long-dated yields has boosted tech stocks, pushing the Nasdaq-100 and Nasdaq Composite to new all-time highs on Monday and Tuesday,” he said.
