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Bond Report: Treasury yields edge lower to kick off week

Yields pull back Monday, as a Treasury selloff that drove the yield on the 2-year note to a nearly 20-month high last week paused. Read More...

Treasury yields pulled back early Monday, with traders bracing for more volatility as concerns rise over whether the Federal Reserve has fallen behind the curve in fighting inflation.

What are yields doing?
  • The yield on the 10-year Treasury note TMUBMUSD10Y, 1.557% fell to 1.553%, compared with 1.583% at 3 p.m. Eastern on Friday. Yields and debt prices move in opposite directions.
  • The 2-year Treasury note yield TMUBMUSD02Y, 0.515% edged down to 0.512% after ending Friday afternoon at 0.522%, its highest 3 p.m. finish since March 18, 2020, according to Dow Jones Market Data, as it posted its largest weekly rise since October 2019.
  • The yield on the 30-year Treasury bond TMUBMUSD30Y, 1.936% declined to 1.934%, compared with 1.955% on Friday.
What’s driving the market?

Treasurys sold off last week, driving up yields, particularly at the short end of the curve, as inflation worries remained front and center, amplified by the release Wednesday of the October Consumer Price Index, which showed a much hotter-than-expected 6.2% year-over-year rise, the fastest in nearly 31 years.

Analysts said bond-market volatility is likely to continue to rise, potentially sending ripples into other asset markets.

In the Treasury market, the frontloading of rate-hike expectations is stoking worries that the Fed will be forced to act aggressively, potentially sparking an economic downturn. As a result longer-dated yields have remained largely steady, while real, or inflation-adjusted yields, have fallen toward all-time lows at the long end.

The New York Fed’s Empire State Index for November is due at 8:30 a.m. Eastern. The economic calendar this week October retail sales data on Tuesday, along with industrial production.

What are analysts saying?

“Bond market volatility is now up to the highest we’ve seen since the intense COVID period last spring and, indeed, is much higher than much of what we’ve seen over the past five years,” said Steven Barrow, head of G-10 strategy at Standard Bank, in a note.

“That’s understandable,” he wrote. “Investors not only have the uncertainty of the monetary tightening process to figure out at the front end of the curve, but also the juxtaposition of high inflation with signs that growth is faltering. It might be a long way from the stagflation fear that must be every investors’ worst nightmare, but it is likely to keep volatility high in the bond market and elsewhere.”

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