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Long-dated Treasury yields fell while the 2-year yield rose toward the 0.5% level early Wednesday, as investors awaited data on U.S. durable-goods orders for September.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.594%
fell to 1.595%, down from 1.618% at 3 p.m. Eastern on Tuesday. -
The 2-year note yield
TMUBMUSD02Y,
0.492%
rose to 0.496%, compared with 0.448% late Tuesday, after temporarily trading above 0.5% for the first time since March 2020. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.013%
declined to 2.017% from 2.051% late Tuesday.
What’s driving the market?
The flattening of the yield curve — a line plotting yields across all Treasury maturities — comes as investors weigh prospects for the timing of the first interest rate increase by the Federal Reserve since the pandemic and the trajectory of subsequent rises.
Upward pressure on yields of shorter dated maturities comes as investors move up their expectations for the start of the cycle of interest rate increases, possibly next year, once the Fed completes the tapering of its monthly bond purchases. The Fed is widely expected to announce its plan to begin the tapering process at its policy meeting next week.
After an increase in recent months, longer-dated yields have lagged behind the rise at the short end, potentially reflecting expectations the rate-hike cycle will prove relatively short.
A concession in yields ahead of an auction of 2-year Treasury notes on Tuesday was also cited by analysts as a factor in the rise in yields at the short end on Wednesday. A sale Wednesday of $61 billion in five-year notes will also be closely watched.
Meanwhile, investors will also be weighing economic data, particularly U.S. September durable-goods orders due at 8:30 a.m. Eastern. Gross domestic product data for the third quarter will be in focus Thursday.
What are analysts saying?
“Wednesday’s durable goods orders and Thursday’s first look at Q3 GDP represent the last top tier fundamental inputs that could shift the broader outlook. Alas, at this stage we are apprehensive that either hold the potential to derail a tapering announcement given [Fed Chairman Jerome] Powell’s tacit acknowledgement of such in his remarks late last week,” wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in a note.
“This leaves the ‘surprise’ potential limited to the language surrounding the flexibility of tapering. In practical terms, we suspect the Committee will endeavor to deliver symmetric language that the pace of declining asset purchases can be adjusted as needed — depending on the incoming economic data and performance of the recovery,” he said.
