U.S. Treasury yields retreated across the board Thursday, marking the largest daily drop in about a week, as investors parsed data to cap the final days of 2021 amid signs that the impact of the omicron variant on the economy is muted.
The bond market will close an hour early at 2 p.m. Eastern Time on Friday in observance of the New Year’s holiday.
What are yields doing?
- The 10-year Treasury note TMUBMUSD10Y, 1.505% yields 1.514%, versus 1.542% at 3 p.m. Eastern Time on Wednesday. The drop for the 10-year was its largest daily move since Dec. 20, based on 3 p.m. closes.
- The 2-year Treasury note TMUBMUSD02Y, 0.734% rate was at 0.738%, compared with 0.748% a day ago. The fall in rates for the 2-year was its steepest since Dec. 22.
- The 30-year Treasury TMUBMUSD30Y, 1.915%, aka the long bond, was yielding 1.924%, versus 1.954% on Wednesday afternoon. The fall the 30-year yield also was the steepest since Dec. 22.
What’s driving the market?
Treasurys may be seeing some end of month, quarter and year buying and fund rebalancing as 2021 winds down, helping to lower yields.
Meanwhile, U.S. cases of COVID-19 infections set a single-day record, with 441,278 new cases, according to the Centers for Disease Control and Prevention. That far surpasses the previous daily record of 294,015 set last January. And daily new cases in the U.S. also were at a record seven-day average of more than 265,000, as of Tuesday, according to data compiled by Johns Hopkins University.
However, gains in stock prices this week imply investors aren’t overly concerned about the omicron variant of the disease that causes COVID-19 because of evidence that symptoms are milder than other strains of the pathogen. Indeed, data continues to point to limited, if any, damage to recent economic trends.
About 198,000 applied for U.S. unemployment benefits during Christmas week, leaving new jobless claims near a 52-year low amid the biggest labor shortage in decades. Initial jobless claims fell slightly from a revised 206,000 two weeks ago, based on new government data. Economists polled by The Wall Street Journal had forecast new claims to total a seasonally adjusted 205,000.
Separately, Chicago Business Barometer, also known as the Chicago PMI, rose to 63.1 in December up from 61.8 last month. Economists polled by the Wall Street Journal had forecast a reading of 62. Any reading above 50 signals growth, and numbers above 60 are considered exceptional. The reading is sometimes used as an early gauge of the Institute for Supply Management’s closely watched manufacturing report due Tuesday.
There will be no data on Friday in observance of the New Year’s Day federal holiday though U.S. markets will remain open.
Next Wednesday, investors will pore over minutes from the rate-setting Federal Open Market Committee’s mid-December meeting, which could influence trade as investors look to glean more clarity on the central bank’s tactics to combat rising inflation.
What strategists and investors say
- “Throughout the last two years, in addition to changes in market sentiment about risk, central bank policy has been far more accommodative than it was at the end of 2019. The Federal Reserve has kept the federal funds target range at 0-0.25% since its emergency cuts in March 2020. Even with a faster pace of rate increases in its latest projections released after the last FOMC meeting, its median projected federal-funds rate is only 2.1% by the end of 2024,” wrote analysts at Tradeweb.
- “The Treasury curve flattened during the fourth quarter of 2021, with short-term Treasury yields rising precipitously while longer Treasury yields were slightly lower,” wrote Daniel Himelberger, portfolio manager and analyst at Cumberland Advisors, in a research note.
