By Sunny Oh
U.S. Treasury yields finished mostly lower as the bond market looked to find stability following last week’s frenzied moves that saw the benchmark 10-year Treasury surge as high as 1.60%, by some measures.
The reduced volatility came as global central bankers attempted to resist the rise in government borrowing costs that could offset efforts to support their economies through the pandemic.
What are Treasurys doing?
The 10-year Treasury note yield (XTUP:BX:TMUBMUSD10Y) fell 1.5 basis points to 1.444%, while the 2-year note rate (XTUP:BX:TMUBMUSD02Y) was down 2.2 basis points to 0.123%. The 30-year bond rate (XTUP:BX:TMUBMUSD30Y) gained 3.2 basis points to 2.219%.
Bond prices move in the opposite direction of yields.
What’s driving Treasurys?
Markets have steadied after government bond rates jumped last Thursday amid fears that heightened inflationary pressures set to bubble up this year would force the Federal Reserve’s hand, pushing the central bank to lift interest rates much sooner than around 2024, where a projection of Fed officials’ estimates point.
Some of the bond-markets newfound stability on Monday coincided with pushback from global central banks over the rise in long-term government bond yields.
The Reserve Bank of Australia increased its purchases of longer-dated debt on Monday, while European Central Bank policymaker François Villeroy de Galhau said some of the recent yield increases were unwarranted.
Likewise, investors are looking for U.S. central bankers to offer more clarification on any measures that might be undertaken to arrest the rise in long-term bond yields. Richmond Fed President Thomas Barkin said the negative risks around the economic outlook had fallen.
Though Fed Chairman Jerome Powell and other members of the central bank’s interest-rate setting committee have insisted climbing yields for government bonds are consistent with better growth expectations, analysts noted a worrisome rise in inflation-adjusted, or real, rates last week hinted at the threat of higher borrowing costs on an economy still recovering from the pandemic.
In U.S. economic data, the Institute for Supply Management’s manufacturing index for February rose to 60.8% last month from 58.7% in January, matching a two-year high. Any number above 50% represents an expansion in economic activity.
What did market participants say?
“We are going to have a big burst of consumption that will cause because of the stimulus and excess savings will cause a shift in consumption and GDP this year, and that’s just maths. But how does that change the secular outlook?” said Lawrence Dyer, head of U.S. rates strategy at HSBC, in an interview.
The longer-term drivers of low interest rates would continue to hang over the market, Dyer said, and suggested the bond market selloff was overdone.