U.S. Treasury yields surged Tuesday, starting the week on a bearish footing as traders fled from longer-dated government bonds amid expectations for vaccines and fiscal spending to power the economy through the pandemic.
Bond markets were closed on Monday in observance of the Presidents Day holiday.
What are Treasurys doing?
The 10-year Treasury yield
TMUBMUSD10Y,
1.293%
climbed 8.9 basis points to 1.289%, around its highest level since February, while the 2-year note rate
TMUBMUSD02Y,
0.121%
was up a basis point to 0.121%. The 30-year bond yield
TMUBMUSD30Y,
2.085%
surged 7.7 basis points to 2.081%. Bond prices move in the opposite direction of yields.
The spread between the 2-year and the 10-year, a gauge of the yield curve’s slope, was at 1.17 percentage points, its widest in four years.
What’s driving Treasurys?
Treasurys were under pressure as investors continued to sell bonds in expectation of higher inflation and economic growth later this year when the economy makes a fuller recovery.
Higher energy prices, rising stock markets, another fiscal relief package, and record-high Treasury auctions all represent the myriad factors pushing rates higher.
But investors cautioned the market selloff lacked a clear driver, leaving it unclear how long the surge in longer-term bond yields, and steepening of the yield curve, could last.
Moreover, recent employment data show there remains plenty of slack in the labor market due to the pandemic, preventing the Federal Reserve from moving away from its accommodative monetary policy stance. Signs that the central bank may start tapering its stimulus was one necessary ingredient for further weakness in Treasurys, analysts said.
Kansas City Fed President Esther George said she was unconcerned by the rise in long-term Treasury yields.
In U.S. economic data, the New York Fed’s Empire State business conditions index rose 8.6 points to 12.1 in February.
What did market participants say?
“It’s all about the pending stimulus and better than expected news on the vaccinations,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, in e-mailed comments.
