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Dec. 7, 2021, 3:45 p.m. EST

Two-year Treasury yield hits highest since March 2020 as omicron fears fade and Fed meeting looms next week

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By Vivien Lou Chen and Mark DeCambre

U.S. Treasury yields edged up again Tuesday, sending the 10- and 30-year maturities to their highest level in a week, as fears of a slowing economy eased on signs the omicron variant of the coronavirus might be no worse than the delta variant. Meanwhile, the 2-year Treasury yield rose to the highest since March 2020 as investors awaited the possibility that the Federal Reserve may reduce its bond purchases at a faster pace at its policy meeting next week.

What are yields doing?

  • The 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -1.41% yield rose 4.6 basis points to 1.479%, up from 1.433% on Monday at 3 p.m. Eastern Time. That’s the highest level since Nov. 29, based on 3 p.m. levels, according to Dow Jones Market Data.

  • The rate for the 30-year Treasury /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -0.52% , known as the long bond, rose 3.7 basis points to 1.795%, up from 1.758%. That’s also the highest level since Nov. 29.

  • The 2-year Treasury note yield /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -1.25% rose 5.4 basis points to 0.687%, compared with 0.633% on Monday afternoon. It’s the highest level for the 2-year, which is more sensitive to shifts in interest-rate expectations, since March 3, 2020.

What’s driving the market?

Stocks jumped on Tuesday, with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.97% , the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.47% and the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.40% poised for another day of strong gains, on hopes that the omicron variant of the coronavirus that causes COVID-19 will be less severe and therefore less harmful to the global economic recovery.

Investors were also taking some comfort in the People’s Bank of China’s decision on Monday to reduce the reserve requirement ratio for banks  by 0.5 percentage point to 8.4%, starting Dec. 15, to stimulate its slowing economy in the wake of a property market slump.

Those factors combined put some pressure on safe havens, such as government bonds.

See : Fed is widely seen backing a faster taper next week

Returns on government debt still remain relatively low, though, considering that the Federal Reserve is likely to announce a plan next week for faster tapering of its monthly bond purchases to combat surging inflation.

The Fed’s next policy gathering is set for Dec. 14-15 and policy makers are in a media blackout period until then.

In data released on Tuesday, the U.S. trade deficit sank almost 18% in October to $67.1 billion from a record $81.4 billion in the prior month, after the biggest surge in exports in 13 years and a slowdown in imports tied to congestion at domestic ports.Meanwhile, a third-quarter decline in U.S. productivity was revised to show a 5.2% drop instead of 5% as previously reported. And unit-labor costs jumped 9.6% versus the original 8.3% reading, reflecting higher wages that companies are paying to attract more employees amid a major shortage of workers.

An auction of $54 billion in 3-year notes /zigman2/quotes/211347046/realtime BX:TMUBMUSD03M +0.40% was “solid,” according to BMO Capital Markets strategist Ben Jeffery.

What strategists are saying

  • “Treasury prices are a bit weaker on lighter flows…We continue to look for higher yields ahead of the Fed taper between now and in early 2022,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Holdings, in a daily note.

add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
-0.05 -1.41%
Volume: 0.00
Feb. 1, 2023 11:13a
add Add to watchlist BX:TMUBMUSD30Y
BX : Tullett Prebon
-0.02 -0.52%
Volume: 0.00
Feb. 1, 2023 11:13a
add Add to watchlist BX:TMUBMUSD02Y
BX : Tullett Prebon
-0.05 -1.25%
Volume: 0.00
Feb. 1, 2023 11:12a
US : Dow Jones Global
-331.39 -0.97%
Volume: 0.00
Feb. 1, 2023 11:13a
-19.25 -0.47%
Volume: 0.00
Feb. 1, 2023 11:13a
US : Nasdaq
-45.92 -0.40%
Volume: 2.34B
Feb. 1, 2023 11:13a
add Add to watchlist BX:TMUBMUSD03M
BX : Tullett Prebon
+0.02 +0.40%
Volume: 0.00
Feb. 1, 2023 11:05a

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