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Yields for U.S. government debt were headed sharply lower Friday morning to end the final full week of trading in November before the Thanksgiving holiday. Bonds have caught a bid amid reports of fresh lockdowns in Europe to help mitigate the spread of the COVID-19.
What are yields doing?
-
The 10-year Treasury note
TMUBMUSD10Y,
1.530%
yields 1.544%, down from 1.586% at 3 p.m. Eastern Time on Thursday. -
The 30-year Treasury
TMUBMUSD30Y,
1.930% ,
known as the long bond, was yielding 1.929%, compared with 1.971% a day ago. -
The 2-year Treasury note rate
TMUBMUSD02Y,
0.456%
was at 0.456%, down from 0.500% on Thursday. - For the week, the 10-year Treasury was down 3.9 basis points early Friday, bringing it to around its lowest yield since Nov. 9; the 2-year note is off 6.6 basis points; while the 30-year bond was off 2.6 basis points.
What’s driving the market?
Rising Covid cases in the U.S. and lockdowns in some countries in Europe are sparking some flight toward the perceived safety of government debt on Friday, driving yields down and prices higher.
Reports indicate that the U.S.’s has been seeing a surge in cases in the Upper Midwest, with a busy travel season about to begin ahead of next Thursday’s Thanksgiving holiday.
Meanwhile, Germany’s health minister Jens Spahn reportedly said Friday that lockdowns couldn’t be ruled out in his country, with cases rising sharply this week in Germany and Austria, as the Austrian government announced a nationwide lockdown starting Monday for up to 20 days, which will include both vaccinated and unvaccinated people.
Meanwhile, a measure of German wholesale inflation jumped 3.8%, compared with forecasts for 2.3%. The move in producer inflation on an annualized basis rose to 18.4%, exceeding average economists’ estimates for 15.7%.
Against that backdrop, European Central Bank leader Christine Lagarde reiterated the European policy maker’s assurances that it would keep accommodative monetary policies in place as the global economy wrangled with surging prices and an uneven recovery from the COVID-19 pandemic.
However, Lagarde still repeated the notion that surging inflation in much of the world is likely a fleeting phenomenon.
“Today, I will argue that those drivers are likely to fade over the medium term, which is the horizon that matters for monetary policy. And, because they largely stem from the supply side and energy prices, they will probably slow the pace of the recovery in the near term,” she said, during a speech at the 1st Frankfurt European Banking Congress.
In the U.S., analysts have been attributing the retreat in bond yields this week to technical factors, with Treasury prices due for a bounce after becoming significantly oversold in the wake of last week’s hotter-than-expected U.S. October Consumer Price Index reading, which like Germany, underscored a striking rise in inflation.
Separately, the market is waiting for President Joe Biden to finalize his decision on nominating a Federal Reserve Chairperson, with current Chairman Jerome Powell in the running against Fed Gov. Lael Brainard to help lead the economy out of the current phase of the rebound from the pandemic.
What analysts are saying
“These [lockdown] reports caused a ‘flight-to-quality’ to core markets
as European stocks went from positive to negative. Core and
semi-core yield have fallen 5bps while US 10yr yields are 4bps
lower in yield,” wroteTom di Galoma managing director at Seaport Global Holdings, in a daily note.
