U.S. Treasury yields slipped from their New York session highs on Friday, with the 10-year retreating from the 1.30% level, after a report showed U.S. business activity cooling in July amid supply constraints.

What are yields doing?

The yield on the 10-year Treasury note

rose 5.1 basis points to trade at 1.2856% versus a level of 1.264% Thursday afternoon. Yields and debt prices move in opposite directions.

The 2-year note yield

was little changed at 0.2021% compared with 0.2% on Thursday.

The yield on the 30-year Treasury bond

rose 2.3 basis points to 1.9236%, compared with 1.90%.

What’s driving the market?

Yields slipped from New York session highs on Friday after IHS Markit said its Flash U.S. Composite Output Index fell to a four-month low in July, as firms continued to report widespread capacity constraints.

Yields are still higher compared to where they were at the start of the week, when the 10-year rate dipped to a five-month low as investors dumped equities and other assets viewed as risky and snapped up Treasurys.

Analysts said next week’s meeting of Federal Reserve policy makers will take center stage, with investors eager for further guidance on the timing of an eventual tapering of the central bank’s asset purchases and the subsequent liftoff of interest rates.

What are analysts saying?

“As financial markets continue to ponder the implications from the delta variant, US rates have consolidated in a range of 1.25% to 1.30% for 10s,” BMO Capital Markets strategists Ian Lyngen and Ben Jeffery wrote in a note. “Given the absence of meaningful fundamental inputs in the U.S. session, we’re anticipating attention will shift toward next week’s FOMC Meeting and the first look at Q2 real GDP.”

“Taking a step back, it’s not lost on us that delta isn’t the first nor is it likely to be the last variant of the coronavirus,” they said. “It’s this reality that adds a bit more fundamental backing to the recent repricing in Treasuries as the implications for the road forward might not just be a month or two longer before all is ‘back to normal’. Rather, given the stalled vaccination uptake and the pace of the virus mutations, investors are beginning to consider a new normal that is that much further from the pre-Covid patterns of consumption and employment.”

Treasurys prices were “softer” during the overnight session in Asia, with Tokyo markets closed for the Olympic games, said managing director Tom di Galoma of Seaport Global Holdings. “We continue to believe that 30-year yields hold
the 2% area so buying dips is favored over the next couple of weeks as long-end supply will not be seen until the week of Aug. 9.”

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