By Mark DeCambre
U.S. Treasury yields rose Tuesday, marking a third straight climb in rates, despite turbulence in equity markets that saw the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.04% register its worst day since Feb. 26.
How are Treasury yields trading?
The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.52% was at 1.623%, up 2.2 basis point based at 3 p.m. ET.
The 30-year Treasury bond rate /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y +0.53% was at 2.352%, gaining 3.3 basis points.
The 2-year Treasury note was yielding 0.159%, up 0.6 basis points.
Bond prices rise as yields fall.
What’s driving Treasurys?
Treasury yields on Friday defied convention, rising rather than falling, during a selloff in the stock market that usually coincides with bond buying and a retreat in rates.
Strategists said that a laser focus on consumer prices and expectations that coming data will show a big jump in inflation is being credited with keeping fixed-income investors hesitant about buying Treasury debt.
The fear is that a rise in inflation will prompt the Fed to pull back on its easy-money policies, ending one of the biggest supports to stocks and bonds.
Data on Tuesday showed that prices at factories in China rose at the fastest pace in 3½ years in April. China’s producer-price index rose 6.8% last month from the period a year ago, the National Bureau of Statistics said.
Fed officials have mostly underscored the central bank’s reluctance to raise rates before the economy fully recovers even if evidence of strong inflation emerges.
On Tuesday , Philadelphia Fed President Patrick Harker said that the economy needs more time to recover before the Fed starts to discuss scaling back asset purchases.
Fed Gov. Lael Brainard, speaking at the Society for Advancing Business Editing and Writing, had a similar message.
“The outlook is bright, but risks remain, and we are far from our goals,” Brainard said. Many economists talk about a coming “boom” for the economy, with GDP growth above 10% in coming quarters.
Separately, Cleveland Federal President Loretta Mester on Tuesday said the central bank is running easier monetary policy than it has in the past but that doesn’t mean it is fraught with danger for the U.S. economy.
“I don’t view it as we’re taking it on more risk. I view it as using the strategies that will achieve our goals more effectively in the new economic environment we’re operating in,” Mester said, in an interview on Yahoo Finance.
Billionaire investor Stanley Druckenmiller said Fed policy is already distorting long-term interest rates and have also enabled financial-market excess, in an op-ed in The Wall Street Journal titled “The Fed is playing with fire.”
Indeed, investors are keenly attuned to the Fed policy and U.S. consumer-price data for April, which is due on Wednesday. That data could offer insights about the trajectory for inflation.
What are fixed-income traders and analysts saying?
“Wednesday represents the next major challenge for the range trading thesis with not only the May 10-year refunding auction on offer, but also the April consumer price data,” wrote BMO Capital Markets strategist Ian Lyngen and Benjamin Jeffery, in a research note.