Long-dated U.S. government bond yields on Monday slipped for a third straight session and hit the lowest levels in about two weeks, kicking off the final week of trade this month.
How are Treasurys performing?
The 10-year Treasury note
was yielding 1.608%, off 2.1 basis points from Friday’s level at 3 p.m. Eastern Time.
The 30-year Treasury
or long bond, rate was at 2.302%, down 3 basis points.
The 2-year Treasury note
was yielding 0.151%, off 0.4 basis point.
The 10-year Treasury note rate hit its lowest level sine May 10, while the 30-year bond touched its lowest yield since May 7, according to Dow Jones Market Data. Bond prices rise as yields falls, and vice versa.
What’s driving the fixed-income market?
Even with Monday’s moves, the 10-year Treasury yield, as well as the long bond, has traded between a range of 1.49% and 1.71% so far this month in the face of a COVID recovery in the U.S.
That rangebound action isn’t likely to be broken in coming days, but buying in sovereign debt has been picking up in Europe, with Germany’s 10-year bund
touching a 2-year high at -0.07% on May 19.
European Central Bank boss Christine Lagarde last Friday said that it was too early for the central bank to scale back its emergency bond-buying measures, echoing views that have been stated by a number of members of the Federal Reserve.
However, minutes from last week suggest that the Fed may soon be ready to start discussing a rollback of its accommodations.
The Fed’s next policy meeting is slated for June 15-16 and the ECB’s meeting will be on June 10.
Rising yields in Europe and ECB policy could have implications for U.S. Treasury yields.
What are strategists and traders saying?
“For while the U.S. has seen strong growth and surging inflation, which has lifted yields, the Fed still seems pretty steadfast in its view that conditions have not improved sufficiently to entertain the idea of bond tapering or other measures to tighten financial conditions. In the eurozone, it looks as if economic optimism is improving, after some softening earlier in the year,” wrote Steve Barrow, strategist at Standard Bank, in a Monday note.
“However, yields have started to rise again and the ECB is left with a tricky decision. Does it argue that financial conditions are still being unnecessarily tightened by the rise in yields, and maintain the faster pace of PEPP purchases? Or does it conclude that the economy is now sufficiently robust to accept the rise in yields and trim PEPP purchases back to their pre-Q2 pace?” he said, referring to the ECB’s pandemic emergency purchase program.
“Though the Federal Reserve aims to avoid volatility in equity markets, investors are likely to continue overreacting in anticipation of and immediately following comments from Chair Powell and the [Federal Open Market Committee], wrote Saira Malik, chief investment officer for Nuveen, in a Monday note.
“Similarly, inflation and employment data in the coming weeks could weigh heavily on sentiment, given their implications for Fed action (or inaction),” the money manager wrote.