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Longer dated U.S. Treasury yields edged up Wednesday, headed for the highest rate in about a month, with investors seeing only limited economic impact from the omicron variant of COVID, given evidence suggesting it produces milder symptoms than earlier strains.
Meanwhile, shorter-dated yields, which have recently been drifting higher, saw some steadying on Wednesday.
What are yields doing?
-
The 10-year Treasury note yields
TMUBMUSD10Y,
1.536%
1.524%, up from 1.480% on Tuesday at 3 p.m. Eastern Time, and briefly touching an intraday peak at around 1.562% early Wednesday, which would mark the highest for the benchmark note since late November, FactSet data show. -
The 2-year Treasury note
TMUBMUSD02Y,
0.757%
yields 0.750%, up slightly from 0.748% a day ago. - The 30-year Treasury bond rate was at 1.947%, versus 1.902% on Wednesday afternoon, with the intraday Wednesday peak for the long bond at 1.988%, marking its highest rate since Nov. 25.
What’s driving the market?
Hope that the omicron variant may be milder than other strains and lead to fewer restrictions on commerce and mobility has kept buying of risk assets in the final week of 2021 supported and provided less need for safe-haven bonds.
The World Health Organization reported that the number of COVID-19 cases recorded world-wide increased by 11% last week compared with the previous week, led by the Americas, but hospitalizations have so far increased only slowly.
Still, concerns about economic growth in the coming year persist, keeping yields for longer-dated Treasurys anchored while the 2-year Treasury note holds around its highest level since March of 2020. GDP is on track to expand by nearly 6% in 2021 after shrinking by 3.5% in 2020, its sharpest trough-to-peak rebound in more than half a century, but may slow to 4% or less next year, according to the Economist magazine. However, inflation is nearing a 40-year high, likely prompting higher interest rates from the Federal Reserve in 2022.
Looking ahead on Wednesday, investors will watch for another auction, with $59 billon in 7-year notes
TMUBMUSD07Y,
on offer at 1 p.m. Eastern Time.
In U.S. economic data, the trade deficit in goods surged by 17.5% in November to set an all-time high, keeping the U.S. on track in 2021 to post its biggest annual shortfall on record. An early or advanced look at the trade gap in goods showed that it increased to $97.8 billion in November from a revised $83.2 billion in October, according to the U.S. Census Bureau. The U.S. is poised to surpass a record set in 2006 and incur its biggest international trade deficit ever.
A report on pending home sales for November is due at 10 a.m.
What strategists are saying
“Although economists’ track record for incorporating the pandemic into their calculations has been spotty, at least they provided a veneer of confidence for likely outcomes,” wrote Jim Vogel, executive vice president at FHN Financial. “With Omicron, financial markets do not even have that. One thing that has become clearer as statistics catch up after Christmas is a rapid increase in hospitalizations in the largest states in the US. The growth trend in the last week is vertical in some regions,” he wrote.
