U.S. Treasury yields fell across the board Thursday, with the decline adding to a slide in long-dated rates to around five-month lows, as stock markets skidded lower. The rally in bonds, which was forcing yields down, raised fears that trading in government debt is signaling a growing worry about the sustainability of the economic rebound from COVID.

How Treasurys are performing

The 10-year Treasury note

yielded 1.287% at 3 p.m. Eastern Time on Thursday and hit an intraday nadir at 1.246%, compared with 1.321% a day ago.

The 30-year Treasury bond rate

was at 1.910% after hitting a Thursday low at 1.86%, versus 1.943% on Wednesday.

The 2-year Treasury note

was at 0.192%, compared with 0.216% on Wednesday.

The 10-year yield hit its lowest yield since Feb. 18, while the 30-year was at its lowest rate since Feb. 2, according to data compiled by Dow Jones Market Data. Bond yields fall as prices rise.

Fixed-income drivers

A day after a duo of record closes for U.S. stock market indexes, the S&P 500 index

and the Nasdaq Composite
government debt yields dug deeper into the abyss.. Some analysts argued that a test of the 1.20% level would serve as a signal that fixed-income investors see problems brewing in the economy or the market, or both.

The current decline in yields has been playing out since the conclusion of the Federal Reserve’s two-day meeting on June 16.

On Wednesday, minutes from that mid-June meeting emphasized that the U.S. central bank is starting to contemplate rolling back some of its easy-money measures, including its $120 billion a month asset-purchase program, which has helped to support financial markets since the height of the pandemic disruptions last year.

The minutes implied that the Fed may need to taper its asset purchases sooner than later, paving the way for interest-rate increases, but the account of the central bank’s talks didn’t suggest that policy makers were unified.

The minutes did show that officials still expect recent inflation surges to be short-lived, driven by bottlenecks and a surge in post-pandemic demand.  

U.S. weekly jobless benefit claims didn’t change the complexion of the market. The number of Americans filing for first-time unemployment insurance rose 2,000 to 373,000, above expectations for a drop to 350,000.

What strategists are saying

“The bond market has rallied sharply over the last three months because investors meaningfully and properly lowered their collective expectation of the peak fed-funds rate,” wrote Joe LaVorgna, managing director and chief economist of the Americas at Natixis, wrote in a research note published Thursday.

“This was due to a combination of factors, not the least of which is a high probability we are near an inflection point for growth and inflation. The reduced likelihood of additional fiscal stimulus is also a factor. Fundamentally, we are comfortable with current market expectations which means that for yields to fall further, outside factors would have to come into play,” LaVorgna wrote.

“Bond yields had hit a closing high of 1.74% at the end of March and many believed that the yield on the 10-year Treasury note would hit 2% by the end of 2021 but yields have since executed a sharp turnaround and are now below 1.30%,” wrote Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

“The sharp drop in yields reflects the market’s concern that the Fed will begin tapering soon and that the removal of liquidity from the system will create volatility and a rush out of risk assets (like equities) and toward safe havens (like government bonds),” he wrote.

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