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Treasury yields rose across the board Monday morning, with the long bond 30-year rising above a psychologically significant level at 2% and the benchmark 10-year note briefly breaching 1.5% to touch the highest level since June.
What Treasury yields are doing
-
The 10-year Treasury note
TMUBMUSD10Y,
1.476%
yields 1.490%, versus 1.459% on Friday at 3 p.m. Eastern on Friday and had been as high as 1.51%. Yield move in the opposite direction to prices. It’s the highest level since June 30. -
The 30-year Treasury bond rate
TMUBMUSD30Y,
2.000%
trades at 2.001%, compared with 1.987% at the end of last week. -
The 2-year Treasury note yield
TMUBMUSD02Y,
0.284%
is at 0.284%, compared with 0.274% on Friday.
What’s driving the market?
Treasury yields were advancing on Monday, continuing a climb that appeared to be catalyzed last week after the rate-setting Federal Open Market Committee indicated that it would soon be appropriate to wind down monthly COVID-era asset purchases of Treasurys and mortgage-backed securities that had served to provide liquidity to troubled financial markets during the height of the market’s pandemic-driven woes back in the spring and summer of 2020.
On top of that, the Fed’s projections of interest rates, known as the dot plot, pointed to a sooner-than-expected rate increase for 2022.
On Monday, Chicago Fed President Charles Evans, the first of three Fed speakers, said that he’s still worried the economy isn’t going to generate enough inflation in future years. New York Fed President John Williams will talk to the Economic Club of New York at noon, while Fed Gov. Lael Brainard is due to speak about the economic outlook at the 63rd National Association for Business Economics annual meeting at 12:50 p.m. ET.
Meanwhile, politics will come front and center in the week, with Democratic leaders “trying to shepherd two complicated legislative packages,” The Wall Street Journal reports, namely a roughly $1 trillion bipartisan infrastructure bill and a proposed $3.5 trillion social spending bill. Meanwhile, lawmakers must also act to fund the government beyond the Sept. 30 end of the fiscal year or cause a government shutdown as concerns are growing about the U.S. debt ceiling.
Investors will be watching for a pair of auctions later in the session, including a $60 billion sale of 2-year notes and $61 billion of 5-years
TMUBMUSD05Y,
Meanwhile, Germany’s 10-year debt
TMBMKDE-10Y,
was yielding minus 0.212%, compared with minus 0.227% on Friday, after Social Democrats led by Olaf Scholz captured the biggest share of the vote in a close German election, beating the center-right bloc formerly led by outgoing Chancellor Angela Merkel. Reports indicate that Scholz’s party is likely to head a government, though while his conservative rival Armin Laschet remains determined to fight on, according to reports. It could be weeks or months before a new government is formed.
What analysts are saying
- “Right now, it is all about government bond yields driving the FX markets. Yields are rising sharply, reflecting investors’ expectations about monetary tightening amid surging inflationary pressures,” wrote Fawad Razaqzada, market analyst at ThinkMarkets, in daily note. “If yields climb higher, this could weigh especially on the overstretched growth stocks in the technology sector, which have low dividend yields. Investors might prefer the relative safety of government debt and fixed coupon payments than buying severely overvalued stocks, just as the Fed starts to reduce the pace of its asset purchases,” wrote Razaqzada.
- “The Treasury market continues to digest tapering in November pushing 10-year yields toward 1.5%. The key level to hold this week is 1.52% and a break above that should target 1.6%,” wrote Tom di Galoma, managing director of rates trading at Seaport Global Holdings, in a Monday note.
