U.S. Treasury yields for long-dated debt slid lower Tuesday, despite a stream of robust economic data, as Federal Reserve policy makers gathered in Washington for a two-day meeting.

What yields are doing

The 10-year Treasury note yield

dropped 4.1 basis points to 1.235%, versus 1.276% on Monday at 3 p.m. Eastern Time.

The 30-year Treasury bond

was down 3.5 basis points at 1.890%, compared with 1.925%.

The 2-year note yield

was at around 0.204%, versus 0.194% a day ago.

Fixed-income drivers

A slump in trading in Asian markets overnight helped fuel some Treasury buying earlier on Tuesday, nudging long-term yields lower. Yields remained lower on the day, however, even after a steady stream of data showed U.S. consumer confidence, housing prices, and orders for long-lasting products all climbing.

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Durable-goods orders rose in June despite supply and labor shortages, and U.S. home prices set another record in May, according to the latest edition of the S&P CoreLogic Case-Shiller Home Price Index. Moreover, consumer confidence rose to a 16-month high in July, despite concerns about the delta strain of coronavirus, and manufacturing activity across the U.S.’s central Atlantic region gained further steam this month, according to data from the Federal Reserve Bank of Richmond.

Investors remain focused on the outcome of the meeting of the rate-setting Federal Open Market Committee that concludes with an updated policy statement at 2 p.m. Eastern on Wednesday, followed by a news conference a half-hour later, which will likely test Treasury yields which have been hanging around four-month lows amid questions about inflation and the growth outlook for the U.S. in the aftermath of the COVID-19 crisis.

Treasury’s $61 billion auction of five-year notes

was “solid,” producing a “good result,” according to BMO Capital Markets’ Ben Jeffery.

What analysts are saying

Federal Reserve officials are walking “a bit of a tightrope” at this week’s meeting as they weigh the risks that the coronavirus’s delta variant induces an economic slowdown against the chances of hotter-than-expected inflation in coming months, according to RBC Wealth Management’s Tom Garretson, a senior portfolio strategist.

Any acknowledgment by Fed Chairman Jerome Powell on Wednesday that higher inflation might turn more persistent would surprise markets—causing traders to price in a sooner-than-expected rate hike, while flattening the Treasury curve as stocks sell off, Garretson said via phone Tuesday. Meanwhile, Fed officials also will need to “strike a balance between signaling confidence in the outlook and more downside risks than when they last met in June.”

READ: Fed is walking ‘bit of a tightrope’ between downside risks and inflation

The bond market has become more skeptical about the ability of the U.S. to spur economic growth of 2% annually over the long run, without lasting levels of strong fiscal support from Washington. That was a key takeaway Tuesday from Western Asset Management Company, a fixed-income firm with about $491 billion of assets under management.

“When you go back to the first quarter,” when 10-year Treasury yields were near 1.5%, “people were arguing that the post-pandemic recovery will be materially different,” portfolio manager John Bellows said, referring to expectations that looser policies — both from Congress in the form of fiscal stimulus and from the Fed from monetary support –would prevail going forward.

Those views offered up a “post-pandemic environment” that looked more promising from a growth perspective, he said, but also in terms of an economy that might better withstand higher interest rates.

“What’s happened since,” Bellows said, is that “we have kind of seen a re-evaluation of those points.” The second thing going on, he said, “is that there are risks to the outlook.

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