Long-dated U.S. Treasury yields rebounded Tuesday on signs of a shift in investor sentiment, following Monday’s broad-based flight-to-safety on fears about the spread of the delta variant of the coronavirus that causes COVID-19.
What are yields doing?
- The yield on the 10-year Treasury note TMUBMUSD10Y, 1.217% rose around 2.9 basis points to 1.215%, according to FactSet.
- The 2-year note yield TMUBMUSD02Y, 0.197% fell 7.9 basis points to 0.194%.
- The 30-year Treasury bond yield TMUBMUSD30Y, 1.875% climbed 4.7 basis points to 1.855%.
What’s driving the market?
The 10-year yield climbed, after having dropped earlier in the day to another five-month low. Meanwhile, rates on government debt maturing in five years or less dropped. Together, those moves suggest that investors are eying a later start to the Federal Reserve’s tightening process and reassessing their long-term economic outlooks.
Stocks also rose on Tuesday, with the Dow Jones Industrial Average DJIA, +1.70% higher by 1.8% — a day after the index had suffered its biggest one-day loss since October, on growing fears over the spread of the delta variant. The World Health Organization said cases and deaths are climbing globally after a period of decline, spurred by the highly contagious delta variant.
Analysts said the virus worries added to fears about the nearer-term outlook for economic growth that had been brewing in the bond market in recent months as low vaccination rates in many countries in Asia, in particular, prolong the pandemic.
What are analysts saying?
“The market’s expectations for an accelerated tightening cycle have been pushed back, as reflected in bond yields,” said Edward Moya, senior market analyst for the Americas at Oanda Corp. “Global growth concerns were somewhat overdone and a delayed global economic reopening is not necessarily a major roadblock. Risky assets will still remain attractive, given how low global bond yields are.”
Earlier in the day, BMO Capital Markets strategists Ian Lyngen and Ben Jeffery had said that the “the floor for rates” didn’t appear to be evident. And “there has been plenty of chatter surrounding the possibility 10-year yields dip below 1.0%; an eventuality that would be a short-lived endeavor, but not one that’s off the table,” they wrote in a note on Tuesday.
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