Treasury yields remain up sharply in 2022, but were set Friday to erase, or give back, a chunk of this week’s rise as a tech-led selloff in the stock market appeared to prompt buying interest in government debt.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.758%
was at 1.76%, compared with 1.833% at 3 p.m. Eastern Time on Thursday and 1.771% at the end of last week. The yield traded at a more-than-two-year high near 1.9% on Wednesday and was up 33.7 basis points in the month to date through Thursday. -
The 2-year Treasury yield
TMUBMUSD02Y,
0.999%
was 0.995%, versus 1.049% on Thursday afternoon, which was its highest finish based on 3 p.m. levels since Feb. 27, 2020, according to Dow Jones Market Data. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.076%
stood at 2.079%, compared with 2.14% late Thursday.
What’s driving the market?
The selloff in Treasurys that has driven yields—which move opposite to prices—sharply higher to begin the new year took a pause. The move higher in yields has been driven by signals the Federal Reserve will be much more aggressive than previously expected in raising interest rates and otherwise tightening monetary policy in response to persistently high inflation.
The Fed meets on Tuesday and Wednesday of next week, with policy makers expected to lay the groundwork for a rate increase when they gather again in March.
Read: Fed to use January policy meeting to get ducks in a row for March liftoff
The sharp run-up in yields has been seen as a trigger for a stock-market stumble, particularly for tech and other so-called growth stocks. Growth stock valuations are based on expectations for cash flow far into the future. When Treasury yields rise, the value of that future cash is discounted.
The tech-heavy Nasdaq Composite
COMP,
fell into correction territory earlier this week, after falling more than 10% from its November record high. The Dow Jones Industrial Average
DJIA,
is down 4.5% for the month to date through Thursday, while the S&P 500
SPX,
has slid 6%. Stocks attempted a rebound in Thursday’s session, but suffered a late reversal that left major indexes in the red.
Analysts said the selloff in equities appeared to reach a threshold where it prompted some modest haven-related buying interest in Treasurys, a shift that appeared in Thursday’s session and accelerated somewhat on Friday.
The economic calendar was light, featuring only the Conference Board’s December leading economic index, which rose 0.8%, in line with forecasts and signaling steady growth even as the spread of the omicron variant of the coronavirus nibbled at economic activity.
What are analysts saying?
- “Of late, bond sales/higher rates in anticipation of accelerated Fed rate hikes [weighed on] risky assets. Yesterday, some investors apparently concluded that U.S. yields had risen enough for bonds to retake their safe haven role,” wrote analysts at KBC Bank in Brussels, in a Friday note.
- Thursday’s market action saw investors flip the equity/rate dynamic “where selling in large cap tech companies was accompanied by constant bond selling,” said Jim Vogel, executive vice president at FHN Financial, in a Friday note. But the recent “quick move to bonds on elevated risk has not changed long bond technicals that still have a wide open range. For 10s, that’s still 1.74%-1.95% through the first week of February,” he said.
- “Bond investors will perhaps be keen to not get too carried away with themselves ahead of next week’s FOMC meeting, which may shed greater light on the bank’s plans for the coming year,” said Matthew Ryan, senior market analyst at Ebury, in emailed comments.
