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Treasury yields slipped lower early Tuesday, a day after the 10- and 2-year maturities hit their highest levels since 2019, as investors awaited U.S. wholesale inflation data and the Federal Reserve was due to begin a two-day policy meeting.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.124%
was at 2.126%, down from 2.139% at 3 p.m. Eastern on Monday, which was the highest level for the yield, based on 3 p.m. levels, since June 11, 2019, according to Dow Jones Market Data. -
The 2-year Treasury note yield
TMUBMUSD02Y,
1.830%
was 1.835%, down from 1.847% on Monday afternoon, the highest since July 31, 2019. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.465%
edged down to 2.471% from 2.474% late Monday.
What’s driving the market?
Treasury yields have surged higher ahead of the Fed’s two-day policy meeting, with central bank policy makers expected Wednesday to deliver a 25 basis point increase in the benchmark fed funds rate. Investors will be focused on how Chairman Jerome Powell talks about the Russia-Ukraine war, which has sent commodity prices soaring and is affecting the outlook for both economic growth and inflation.
The February producer-price index is set for release at 8:30 a.m. Eastern. Economists surveyed by The Wall Street Journal were looking for the PPI to show a 0.9% monthly rise after a 1% increase in January.
The New York Fed’s March Empire State manufacturing index is also due at 8:30 a.m., with economists looking for a rise to 5.5 from 3.1 in February.
Talks between Russian and Ukraine officials were expected to resume on Tuesday. Negotiations on Monday failed to produce a breakthrough, while Russian forces continued to pound Ukrainian cities as fighting intensified.
What are analysts saying?
“Hopes for a cease-fire in Ukraine contributed to an early move lower in bond prices (rising yields), but the fact that yields accelerated higher over the course of the day [on Monday] despite the negative shift in Russia/Ukraine news flow suggests that bond traders are becoming increasingly focused on monetary policy and less so on geopolitics,” wrote Tom Essaye, founder of Sevens Report Research, in a note.
“Of course, if there is a material escalation in the war that will bring a fear bid back into bonds and temper the rise in yields. For now, hot economic data and the subsequently hawkish (but appropriate) reaction from the Fed will likely keep the trend in Treasurys lower, sending yields to new multiyear highs,” he said.
