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Treasury yields turned mixed Wednesday after a much stronger-than-expected jump in private-sector payrolls last month and as investors awaited minutes of the Federal Reserve’s December policy meeting.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.666%
was at 1.649%, compared with 1.666% at 3 p.m. Eastern on Tuesday. Yields and debt prices move opposite each other. -
The 2-year Treasury yield
TMUBMUSD02Y,
0.793%
stood at 0.778%, up from 0.764% Tuesday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.064%
was 2.056% versus 2.077% late Tuesday.
What’s driving the market?
Investors showed some buying interest in Treasurys on Wednesday after a two-day selloff that drove yields on 10- and 30-year maturities to their highest since late October, steepening the yield curve as investors appeared to largely brush aside worries about the spread of the omicron variant of the coronavirus that causes COVID-19.
But short-dated yields jumped early Wednesday and long-dated yields trimmed their decline after ADP reported that private-sector payrolls rose by 807,000 in December, more than double the 375,000 expected by economists.
The official U.S. jobs report is due Friday, with economists looking for the economy to have added a total 422,000 jobs. The ADP data isn’t viewed as a strong guide to the official figures, but the December jump could add to expectations among economists for a strong figure that could further bolster rate-hike expectations.
The run-up in yields to kick off 2022 sparked a sharp selloff in growth-oriented stocks, which are more sensitive to rising rates, with the tech-heavy Nasdaq Composite
COMP,
tumbling more than 1% on Tuesday.
Minutes of the December meeting of the rate-setting Federal Open Market Committee are due at 2 p.m. Eastern. Investors will be sifting through the details of the deliberations, which saw policy makers agree to speed up the wind-down of the central bank’s monthly asset purchases, putting them on track to conclude in March. Investors have increasingly bet that the Fed could begin to lift rates then.
In data released Wednesday, the final reading of the IHS Markit services purchasing managers index for December came in at 57.6. Though down from 58 in November, that still signaled a sharp upturn in service sector business activity despite an easing pace of growth.
What are analysts saying?
- “The story here, perhaps, is that the fading of some of the forces holding back labor supply — enhanced/extended unemployment benefits, and school/childcare closures — combined with strong labor demand, triggered rising participation late last year, facilitating a surge in payrolls,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note. “This could be interrupted in the January numbers by the omicron COVID wave, but it looks as though December survey week fell in something of a sweet spot, after the delta wave faded but before the omicron surge began.”
- “With three rate hikes in 2022 now the median forecast of FOMC members the market will also be keen to see if the minutes show that members are anxious to start talking about rate hikes now in order to give the Fed room to hike as soon as tapering is done, or whether the Fed is thinking more in terms of getting the taper done and then prompting the market with suggestions of quick rate increases,” said Steve Barrow, head of G-10 strategy at Standard Bank, in a note. “The former could keep the market focused on more of the sharp yield rises we have seen so far this year, while the latter might give the Treasury market a bit of breathing space,” he said.
