Treasurys fell across much of the curve on Monday, following Federal Reserve Chairman Jerome Powell’s dovish Jackson Hole speech last week, as traders turned their attention to economic data, including a crucial August jobs report due at the end of the week.
On Friday, Powell left unclear the timing of an announcement on tapering bond purchases this year, which was seen as a catalyst for driving investors into both stocks and bonds today.
What are yields doing?
The yield on the 10-year Treasury note
was at 1.285%, down slightly from 1.311% at 3 p.m. Eastern on Friday. Yields and debt prices move in opposite directions.
The 2-year note
yielded 0.207%, down from 0.215% at the end of last week.
The yield on the 30-year Treasury bond
was at 1.904%, down from 1.917% late Friday.
What’s driving the market?
The yield on the 10-year note saw its biggest weekly rise last week since June, rising 5.2 basis points, but pulled back on Friday after Federal Reserve Chairman Jerome Powell delivered remarks at the Kansas City Fed’s virtual Jackson Hole event.
Powell said he was in favor of beginning to scale back the Fed’s monthly asset purchases before the end of the year, but was vague about the timetable. He also emphasized that the start of tapering shouldn’t be read as a signal about the timing of rate increases.
Analysts said the remarks underline the importance of near-term economic data in determining when tapering is likely to begin, ensuring a sharp focus on Friday’s August jobs report. But for now, investors interpreted Powell’s comments as a continuation of easy policy and continued to pile into both stocks and bonds on Monday.
In data releases, pending-home sales slid for a second month in a row, though it is too early to say whether that is a sign of a cooling market. Pending-home sales fell 1.8% in July compared with June, the National Association of Realtors reported Monday. Economists polled by MarketWatch had projected a 0.5% increase.
Meanwhile, Ida was downgraded from a hurricane to a tropical storm as its top winds slowed over Mississippi on Monday, a day after making landfall on the Gulf Coast with winds of 150 miles an hour, tying it for the fifth strongest hurricane to hit the U.S. mainland.
The storm sent gasoline futures jumping as it forced the closure of Gulf Coast refineries and the shutdown of a key pipeline that transports fuel to the Southeast. Oil prices made modest moves in either direction.
What are analysts saying?
“Given Powell’s speech, Friday’s jobs report could well determine 1) when tapering starts and 2) how quickly it occurs, given it is the last jobs report before the Sept. 22 Fed meeting,” wrote Tom Essaye, founder of Sevens Report Research, in a note. “So, that makes Friday’s jobs report the most important one in years, frankly speaking and…the bottom line is that the jobs report has to be Goldilocks enough that it doesn’t cause the Fed to accelerate tapering,” he said.
“Tapering and the end of QE doesn’t necessarily mean long term rates will move higher,” Dimitri Delis, managing director of Piper Sandler Cos., said in a note Monday. “In the previous period of tapering (12/2013-10/2014), yields fell during the implementation period. Also over the last 12 years, following the termination of each QE program the 10yr Treasury rate has always moved lower. If history repeats itself, tapering and the end of QE4 could lead to lower rates again.”