By Mark DeCambre
Longer dated U.S. Treasury yields rose to the highest level in about a month Wednesday, with investors seeing only limited economic impact from the omicron variant of COVID, given evidence suggesting it produces milder symptoms than earlier strains.
Meanwhile, shorter-dated yields, which have recently been drifting higher, steadied.
What did yields do?
The 10-year Treasury note yields /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -3.76% 1.542%, up 6.2 basis points from 1.480% on Tuesday at 3 p.m. Eastern Time, to register the highest rate since Nov. 24, after briefly touching an intraday peak at around 1.562% early Wednesday.
The 2-year Treasury note /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -4.31% yields 0.748%, unchanged from a day ago.
The 30-year Treasury bond rate was at 1.954%, up 5.2 basis points from Tuesday afternoon, marking its highest rate since Nov. 24.
What drove the market?
Hope that the omicron variant may be milder than other strains and lead to fewer restrictions on commerce and mobility has supported buying of risk assets in the final week of 2021, undermining the need for safe-haven bonds.
The World Health Organization reported that the number of COVID-19 cases recorded world-wide increased by 11% last week compared with the previous week, led by the Americas, but hospitalizations have so far increased only slowly.
Still, concerns about economic growth in the coming year persist, keeping yields for longer-dated Treasurys anchored, while the 2-year Treasury note holds around its highest level since March of 2020. GDP is on track to expand by nearly 6% in 2021 after shrinking by 3.5% in 2020, its sharpest trough-to-peak rebound in more than half a century, but may slow to 4% or less next year, according to the Economist magazine. However, inflation is nearing a 40-year high, likely prompting higher interest rates from the Federal Reserve in 2022.
Meanwhile, an auction of $59 billon in 7-year notes /zigman2/quotes/211347050/realtime BX:TMUBMUSD07Y -3.88% stumbled, according to at least one analyst. The auction tailed, leading to distribution before the end of the day at 1.480%, outside the 1.45% at the high end of expectations for the offering. The “tail” refers to the difference between the highest accepted yield and the yield seen ahead of the auction.
In U.S. economic data, the trade deficit in goods surged by 17.5% in November to set an all-time high, keeping the U.S. on track in 2021 to post its biggest annual shortfall on record. An early or advanced look at the trade gap in goods showed that it increased to $97.8 billion in November from a revised $83.2 billion in October, according to the U.S. Census Bureau. The U.S. is poised to surpass a record set in 2006 and incur its biggest international trade deficit ever.
In housing data, pending home sales decreased 2.2% in November compared with October, the National Association of Realtors reported Wednesday. Economists polled by MarketWatch had projected a 0.8% increase for pending home sales in November.
What strategists said
“Today’s increase in yields has no particular trigger, beginning with overnight weakness in EU bonds with the first full day back for most money centers. The [Treasury] curve pivot is the 3-year, and 30s broke through short-term support with no problem,” wrote Jim Vogel, executive vice president at FHN Financial. “One thing that has become clearer as statistics catch up after Christmas is a rapid increase in hospitalizations in the largest states in the US. The growth trend in the last week is vertical in some regions,” he wrote.