Bond Report: 10-year Treasury yields edge lower as investors await auction, job-openings report, Beige Book

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U.S. Treasury yields pulled back on Wednesday as investors awaited a batch of data and economic updates, including those on job openings in America and an anecdotal account of business conditions in the Federal Reserve’s 12 business districts, known as the Beige Book.

Meanwhile, an auction of 10-year debt later Wednesday afternoon will be closely watched.

What yields are doing
  • The 10-year Treasury note yields

    1.35%, versus 1.370% at 3 p.m. Eastern Time on Tuesday. Yields for bonds move opposite to prices.

  • The 30-year Treasury bond rate

    was at 1.960%, compared with 1.985% Tuesday afternoon.

  • The yield on the 2-year Treasury note

    was at 0.216%, after yielding 0.220% a day ago.

The 10-year Treasury note hit its highest yield since July 13 on Tuesday, the 30-year touched its highest level since Aug. 12 and the 2-year hit its rate since Aug. 26, according to data compiled by Dow Jones Market Data.

What’s driving the market?

The 10-year Treasury yield was pulling back from its highest level in about two months. Some strategists attributed the retreat in yields to investors bargain hunting for beaten up government debt that now offers relatively richer rates.

U.S. equity markets looked to be under pressure on Wednesday, which could also be adding to the appetite for safe-haven bonds.

A few fixed-income investors speculated that Tuesday’s selling in benchmark bonds might be tied to fresh fears of inflation. Talk of so-called stagflation — an economic environment marked by high unemployment, high inflation, and low economic growth — also is being bandied about.

Meanwhile, St. Louis Federal Reserve President James Bullard, in an interview with the Financial Times published on Wednesday (paywall), said that the U.S. central bank should move toward trimming its monthly purchases of $120 billion in Treasurys and mortgage-backed securities, which have provided liquidity to the market during the COVID crisis but are seen as unnecessary.

“The big picture is that the taper will get going this year and will end sometime by the first half of next year,” he was quoted as saying by the FT. Bullard had previously called for the Fed to begin scaling back its bond purchases.

The Fed official argued that Friday’s weaker-than-expected jobs August report doesn’t reflect a faltering recovery in the labor market amid the spread of the delta variant of COVID-19.

“If we can get the workers matched up and bring the pandemic under better control, it certainly looks like we’ll have a very strong labor market going into next year,” Bullard said. The St. Louis Fed president isn’t currently a voting member of the central bank’s rate-setting Federal Open Market Committee but he will be next year.

In any event, investors will be watching on Wednesday for a report on job openings, or JOLTs for July, with economists surveyed by Econoday forecasting job openings to rise to 10 million, after marking four consecutive record monthly highs. The report will be released at 10 a.m. Eastern Time.

A report on business conditions in America will be released at 2 p.m., which will be pored over for the impact from the delta variant.

Investors are also watching for additional comments from Fed speakers on Wednesday, including New York Fed President John Williams at 1:10 p.m. and Dallas Fed President Robert Kaplan speaks at 6 p.m.

Later in the session, investors will digest a $38 billion auction of 10-year Treasury notes, which could influence trading in the benchmark bond.

What analysts are saying

“We had seen yesterday some clear evidence of risk reduction in the bond market as yields rose as investors feel uncertain after such a long rally in many equity markets,” wrote Sébastien Galy, senior macro strategist, at Nordea Asset Management, in a note.

“This sense of unease when growth decelerates is the recipe for the consolidation we have been expecting — it is quite a transient phenomenon. The economy will adapt fairly easily to the delta and subsequent variants provided the vaccine pipeline and its R&D pipeline can hold,” he wrote.