Treasury yields rose across the board on Monday morning, with the 30-year long bond breaking a psychologically significant level at 2% and the 10-year benchmark bond hitting its highest level since early July.
What Treasury Yields Do
The 10-year Treasury bill TMUBMUSD10Y,
yields 1.485%, versus 1.459% Friday at 3 p.m. Eastern time Friday. Yields move in the opposite direction to prices.
The 30-year Treasury bill rate TMUBMUSD30Y,
is trading at 2.006%, up from 1.987% at the end of last week.
The yield on 2-year treasury bills TMUBMUSD02Y,
is 0.284% of the 2-year Treasury, down from 0.274% on Friday.
On Friday, the 10-year Treasury bill was at its highest since July, the 30-year was at its highest since August 12, and the 2-year was at its highest since April 6, 2020, according to Dow Jones Market Data.
What drives the market?
T-bill yields were advancing on Monday, continuing an ascent that appeared to be catalyzed last week after the federal rate-setting committee said it would soon be appropriate to end monthly asset purchases in the COVID era treasury bills and mortgage-backed securities that had been used to liquefy troubled financial markets at the height of the woes of the market pandemic in the spring and summer of 2020.
On top of that, the Fed’s interest rate projections, known as the dot plot, indicated an earlier-than-expected rate hike for 2022.
On Monday, investors will watch for comments from Chicago Fed Chairman Charles Evans, who will speak at the 63rd National Association for Business Economics at 8:00 am EST; New York Fed Chairman John Williams will speak on the US economic outlook at the New York Economic Club at noon; while Fed Governor Lael Brainard, who is due to speak on the economic outlook at the 63rd annual meeting of the National Association for Business Economics at 12:50 p.m. ET.
Meanwhile, politics will be the focus of the week, with Democratic leaders “trying to steer two complicated legislative packages,” the Wall Street Journal reports, including an estimated $ 1,000 billion bipartisan infrastructure bill. and a $ 3.5 trillion budget bill. Failure to pass the budget bill risks triggering a government shutdown as concerns grow about the US debt ceiling.
Investors will be watching a pair of auctions later in the session, including a $ 60 billion 2-year note sale and $ 61 billion 5-year TMUBMUSD05Y sale,
Meanwhile, German 10-year debt TMBMKDE-10Y,
yielded minus 0.207%, compared to -0.227 on Friday, after the Social Democrats led by Olaf Scholz won the largest share of the vote in a close German election, beating the center-right bloc led by outgoing Chancellor Angela Merkel. Reports indicate that Scholz’s party is likely to lead a government, although his conservative rival Armin Laschet remains determined to fight, according to the reports.
What analysts say
“Right now it’s all about government bond yields driving the currency markets. Yields are rising sharply, reflecting investors’ expectations for monetary tightening amid high inflationary pressures, ”Fawad Razaqzada, market analyst at ThinkMarkets, wrote in a daily note. “If yields rise higher, this could weigh particularly on overexploited growth stocks in the tech sector, which have low dividend yields. Investors might prefer the relative safety of government debt and fixed coupon payments rather than buying heavily overvalued stocks, just as the Fed begins to reduce the pace of its asset purchases, ”Razaqzada wrote.
“The Treasury market continued to digest the tapering in November, pushing 10-year yields towards 1.5%. The key level to maintain this week is 1.52% and a break above that should target 1.6%, ”wrote Tom di Galoma, managing director of rate trading at Seaport Global Holdings, in a note from Monday.