Treasury yields bounced Wednesday as haven-related buying inspired by worries over the omicron variant of the coronavirus faded and investors continued to assess Federal Reserve Chairman Jerome Powell’s signal that the central bank was prepared to speed up its wind-down of monthly asset purchases.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.480%
rose to 1.489%, up from 1.44% at 3 p.m. Eastern Tuesday. Yields and debt prices move in opposite directions. -
The 2-year Treasury yield
TMUBMUSD02Y,
0.602%
rose 0.599%, compared with 0.524% Tuesday afternoon. -
The 30-year Treasury bond yield
TMUBMUSD30Y,
1.819%
was 1.814%, up from 1.784% late Tuesday.
What’s driving the market?
Financial markets have been on a roller-coaster ride in recent sessions as investors attempt to come to grips with the implications of the omicron variant. Powell on Tuesday surprised market participants by opening the door to speeding the tapering process when policy makers meet later this month.
Long-dated Treasury yields fell Tuesday on renewed omicron worries, while short-term rates rose, continuing a flattening of the yield curve. Haven-related buying helped buoy Treasury prices, pushing down yields, as stocks and other risky assets tumbled. Stock-index futures pointed to a bounce for equities on Wednesday, while oil futures, which have also been hit hard by omicron worries, also took back a portion of the previous session’s slide.
Powell is slated to deliver a second day of testimony before lawmakers on Wednesday.
Data on private-sector payrolls from ADP is due at 8:15 a.m. Eastern, while the final November Markit purchasing managers index reading on manufacturing activity is due at 9:45 a.m., while the Institute for Supply Management’s manufacturing index for November comes out at 10 a.m.
October construction-spending data is also set for release at 10 a.m. The Fed’s so-called Beige Book of economic anecdotes across the central bank’s regions is set for release at 2 p.m.
What are analysts saying?
The problem for the bond market posed by the omicron variant “is to know not only how big this threat is, but whether it is deflationary or inflationary,” said Steve Barrow, head of G-10 strategy at Standard Bank.
“So far bond yields have tumbled and forward inflation measures, like the five-year inflation swap starting in five years have fallen as well,” he wrote. “But most policy makers who have talked about this, like Fed Chair Powell or Catherine Mann from the Bank of England, seem to be skewing the risks towards higher inflation and we think this is correct. So, while there’s no doubt that bonds will rally and yields fall if risk aversion takes an even firmer grip, bond bulls have to remember that the cost of omicron could be higher inflation — and higher yields — over the longer term.”
