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Treasury yields remain up sharply in 2022, but were set Friday to give back a chunk of this week’s rise as traders look ahead to next week’s meeting of Federal Reserve policy makers.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.776%
was at 1.792%, compared with 1.833% at 3 p.m. Eastern on Thursday. The yield was up 33.7 basis points in the month to date through Thursday. -
The 2-year Treasury yield
TMUBMUSD02Y,
1.028%
was1.028%, versus 1.049% on Thursday afternoon, which was its highest finish based on 3 p.m. levels since Feb. 27, 2020, according to Dow Jones Market Data. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.093%
stood at 2.102%, compared with 2.14% late Thursday.
What’s driving the market?
The selloff in Treasurys that has driven yields — which move opposite to prices — sharply higher appeared to take a pause. The move higher in yields has been driven by signals the Federal Reserve will be much more aggressive than previously expected in raising interest rates and otherwise tightening monetary policy in response to persistently high inflation.
The Fed meets on Tuesday and Wednesday of next week, with policy makers expected to lay the groundwork for a rate increase when they gather again in March.
Read: Fed to use January policy meeting to get ducks in a row for March liftoff
The sharp run-up in yields has been seen as a trigger for a stock-market stumble, particularly for tech and other so-called growth stocks. Growth stock valuations are based on expectations for cash flow far into the future. When Treasury yields rise, the value of that future cash is discounted.
The tech-heavy Nasdaq Composite
COMP,
fell into correction territory earlier this week, after falling more than 10% from its November record high. The Dow Jones Industrial Average
DJIA,
is down 4.5% for the month to date through Thursday, while the S&P 500
SPX,
has slid 6%. Stocks attempted a rebound in Thursday’s session, but suffered a late reversal that left major indexes in the red.
Analysts said the selloff in equities may have reached a threshold where it prompted some modest haven-related buying interest in Treasurys.
The economic calendar is light, featuring the Conference Board’s December Leading Economic Index at 10 a.m. Eastern.
What are analysts saying?
“Of late, bond sales/higher rates in anticipation of accelerated Fed rate hikes [weighed on] risky assets. Yesterday, some investors apparently concluded that U.S. yields had risen enough for bonds to retake their safe haven role,” wrote analysts at KBC Bank in Brussels, in a Friday note.
“Bond investors will perhaps be keen to not get too carried away with themselves ahead of next week’s FOMC meeting, which may shed greater light on the bank’s plans for the coming year,” said Matthew Ryan, senior market analyst at Ebury, in emailed comments.
