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Treasurys resumed a selloff Monday as investors returned from a three-day weekend, pushing the yield on the 10-year note to a level last seen in late 2018.
U.S. markets were closed for Good Friday. Most European markets are closed Monday.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.829%
was 2.864%, compared with 2.808% Thursday afternoon — its highest level, based on 3 p.m. Eastern levels, since Dec. 18, 2018, according to Dow Jones Market Data. -
The 2-year Treasury yield
TMUBMUSD02Y,
2.477%
was 2.489%, compared with 2.442% Thursday afternoon. The yield fell 7.6 basis points last week. -
The 30-year Treasury yield
TMUBMUSD30Y,
2.942%
was 2.94%, compared with 2.917% late Thursday, which was its highest since May 31, 2019.
What is driving the market?
Treasury yields have marched higher in 2022 as investors wrestle with inflation running at its hottest in four decades. Data last week showed the year-over-year pace of U.S. consumer inflation at 8.5%, its hottest since 1981, though a slower rise in the monthly core inflation reading, which strips out volatile food and energy prices, fueled a debate over whether inflation may be peaking.
The Fed is seen pressing ahead with an aggressive tightening of monetary policy, including a likely half-point increase in the fed-funds rate at its policy meeting next month rather than the usual quarter-point increment and has outlined a plan for a fast-paced reduction of its nearly $9 trillion balance sheet.
The yield on the 2-year Treasury note earlier this month briefly moved above the 10-year rate, inverting the yield curve. A persistent inversion of that measure of the curve is seen as a reliable recession warning signal. The curve has subsequently re-steepened, though the spread between 10- and 2-year yields narrowed somewhat early Monday.
See: Recession fears and the stock market — Is it too late to play defense?
China’s economy expanded 4.8% annually in the first quarter, which beat expectations.
The U.S. economic calendar features an April home builders index reading at 10 a.m.
St. Louis Fed President James Bullard, who dissented from the Fed’s March decision to hike the fed-funds rate by a quarter point, calling instead for a half-point increase, is due to speak at 4 p.m.
What do analysts say?
“Looking at the yield curve, the 10s-2s spread continued to widen out and is now smack in the middle of the 30-40 basis point resistance range, and we think that’s a critical resistance level,” said Tom Essaye, founder of Sevens Report Research, in a note.
“If this steepening in the yield curve is mostly technically driven, it should stall here. However, if the 10s-2s spread decisively breaks through 40 bps, we’ll again take that as a signal from the bond market that it simply does not believe the Fed will be tough enough to break inflation. And if that’s the case then it’s bullish for value and commodities, even considering current gains,” he wrote.
