By Vivien Lou Chen and William Watts
Long-dated Treasury yields rose Monday morning, taking back some of the decline seen when investors piled into U.S. government debt during Black Friday’s rout in stocks and oil that was sparked by the discovery of the omicron variant of the coronavirus.
What are yields doing?
The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00% rose to 1.539% at 3 p.m. Eastern, up from 1.484% at the end of a holiday-shortened session on Friday afternoon. Yields rise as Treasury prices fall.
The 2-year Treasury yield /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y 0.00% was 0.508%, down from 0.518% on Friday afternoon.
The 30-year Treasury bond /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y 0.00% yielded 1.879%, versus 1.83% at the end of last week.
On Friday, the 10-year yield plunged 16 basis points for its biggest one-day drop since March 23, 2020, while the 12.6 basis point tumble in the 2-year rate was the largest since March 9, 2020, according to Dow Jones Market Data. The 30-year yield fell 13.9 basis points, the biggest one-day fall since April 15, 2020.
What’s driving the market?
Yields rose on Monday as anecdotal reports from physicians in South Africa indicated that omicron symptoms aren’t more severe than in previous surges, boosting overall sentiment in early action. Later, President Joe Biden described the variant as “a cause for concern, not a cause for panic” and said that Americans wouldn’t face “shutdowns or lockdowns.” Though questions remain about the transmissibility of the omicron variant and definitive assessments are likely still weeks away, investors sold off Treasurys and appeared ready to dip back into assets perceived as risky.
In One Chart: Only 10% of investors see omicron as biggest threat to financial markets by year-end: flash poll U.S. benchmark stock indexes were on the rise Monday trading following Friday’s steep selloff. Oil futures were also rebounding from their plunge on Friday, which sent the West Texas Intermediate crude oil for January /zigman2/quotes/209723049/delayed CL00 +0.74% down by 13%.Friday’s rally in Treasurys was the largest since the early days of the pandemic, and had been amplified by holiday trading conditions in a shortened session the day after Thanksgiving.On Friday, the World Health Organization’s technical advisory group declared omicron a “variant of concern,” with several countries imposing flight bans from countries in southern Africa where the variant was first discovered. Omicron has been detected in around a dozen countries, according to media reports.
Before the discovery of the new variant, investors had started to lean toward the potential for the Federal Reserve to announce that it was ready to speed the tapering of asset purchases at its December policy meeting. The emergence of the omicron variant is seen as undercutting prospects for an accelerated taper, some analysts said.
What are analysts saying?
“We still know almost nothing definitive about whether omicron is more transmissible or deadly than other coronavirus variants, but it adds to the downside risks, which were already on the rise with the winter surge in infections in the Northeast and the Midwest,” said Paul Ashworth, chief North America economist at Capital Economics.
“Under those circumstances, we think it is unlikely that the Fed will accelerate the pace of its QE taper at [its Dec. 14-15] FOMC meeting, which could have paved the way for interest rate hikes earlier next year,” Ashworth said, in a note. “There is some debate about whether omicron will add to inflationary pressure if it affects supply more than demand, but the collapse in energy prices suggest that, initially at least, the impact will be strongly disinflationary.”