Treasury yields fell across the board Monday, with the 10-year rate declining to its lowest yield in about three weeks, as investors monitored China’s reopening and awaited remarks this week by Federal Reserve Chair Jerome Powell and a round of U.S. inflation data.
Price action
- The yield on the 2-year Treasury note TMUBMUSD02Y, 4.270% fell 6.3 basis points to 4.197% at 3 p.m. Eastern. Yields and debt prices move opposite each other.
- The yield on the 10-year Treasury note TMUBMUSD10Y, 3.565% dropped 5.4 basis points to 3.516%.
- The 30-year Treasury bond TMUBMUSD30Y, 3.658% yielded 3.65%, down 4.2 basis points.
- Yields on the 2- and 10-year notes saw their lowest close, based on 3 p.m. levels, since Dec. 16, according to Dow Jones Market Data, while the 30-year bond yield was the lowest since Dec. 19.
Market drivers
Treasurys continued a rally, dragging down yields. It was sparked last week by a sharp drop in the Institute for Supply Management’s services index into territory that signals a contraction in activity, underlining fears the economy is sliding toward recession.
Jobs data on Friday showing that wage growth slowed in December boosted expectations the Federal Reserve will slow the pace of rate increases in 2023.
Yields remained under pressure, despite remarks by San Francisco Fed President Mary Daly, who said she expects the central bank to boost interest rates above 5% to get inflation down. “I think something above 5 is absolutely, in my judgment, going to be likely,” Daly said during a streamed interview with The Wall Street Journal.
Atlanta Fed President Raphael Bostic on Monday reiterated his expectation for rates to rise above 5%, according to news reports.
The New York Fed on Monday said its December Survey of Consumer Expectations showed consumers see inflation running at a 5% rate a year from now. That’s down from 5.2% in the prior month, and is at the lowest level since July 2021.
Meanwhile, China’s reopening from strict COVID-19 restrictions fueled a rally in oil prices.
Fed Chair Jerome Powell is due to speak Tuesday, while the December consumer-price index reading is due on Thursday.
What analysts say
“Treasuries rallied on Monday despite this week’s looming auctions. The bid was partially a carryover from Friday’s disappointing ISM and wage data. The NY Fed’s inflation gauge revealed consumers have lowered their 1-year outlook to 5.0% from 5.2% while leaving the 3-year outlook for consumer prices unchanged at 3.0% — incrementally constructive, but nothing particularly dramatic,” wrote Ian Lyngen and Benjamin Jeffery, rates strategists at BMO Capital Markets, in a note.
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