U.S. Treasury prices were mixed Tuesday, with yields in the long end modestly lower again a day after the 10-year sank to its lowest yield since February.

What are yields doing?

The 10-year Treasury note yield

fell to 1.170% compared with 1.173% at 3 p.m. Eastern on Monday, which was the lowest level for the 10-year yield since Feb. 11, based on 3 p.m. yields, according to Dow Jones Market Data.

The 2-year Treasury note yield

rose to 0.180% versus 0.174% Monday afternoon.

The yield on the 30-year Treasury bond

slipped to 1.841% compared with 1.853% Monday afternoon.

What’s driving the market?

Concerns about the impact on economic growth resulting from the spread of the delta variant of the coronavirus that causes COVID-19 remained an issue. The seven-day moving average of new Covid cases was 72,000 as of July 31, according to data compiled by the CDC. However, the CDC data also shows 70% of U.S. adults have had at least one shot of a Covid-19 vaccine.  Mask mandates have been reintroduced in parts of the U.S., including Louisiana and San Francisco. China has also announced mass testing in Wuhan, the city where the disease first emerged.

The U.S. Treasury Department said Monday it expects to borrow $673 billion in the third quarter, which is $148 billion lower than previously estimated. The decline was driven, in part, by lower outlays than expected. The updated forecast includes an end-of-quarter cash balance of $750 billion.

Data on U.S. June factory orders is due at 10 a.m. Eastern.

What are analysts saying?

The new wave of the coronavirus “has not only brought into question the timing of next steps toward returning to normal, it’s also raised concerns that this might be the new normal,” BMO Capital Markets strategists Ian Lyngen and Ben Jeffery wrote in a note.

“The pandemic-related supply chain disruptions that have triggered the series of higher-than-expected increases in consumer prices have thus far been dismissed as transitory and as such not necessitated a monetary policy response,” they said. “However, should the delta variant keep workers sidelined for even longer, wage gains will prove durable (particularly in the front-line service sector) and reinforce the upside already seen in the inflation complex. This would present a challenge to the Fed’s new framework as the employment goals will be far from realized even as inflation appears to be of a more organic nature.”

“The question is whether the bond market is sensing something sinister ahead or whether the latest moves can be explained away as technical. There are solid arguments on both sides,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note.

The spread of the delta variant is adding to jitters about peak growth, but aggressive central bank buying of bonds is also a factor as some players, including banks, are forced to buy “truckloads of Treasurys” as top-tier collateral, he said.

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