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Treasurys were under pressure Monday, pushing up yields, after a brutal selloff last week. Yields on 5- and 3-year Treasury notes traded above the rate on the 10-year Treasury.
Yield moves
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The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.469%
traded as high as 2.547%, according to FactSet, before pulling back to 2.468%, down from 2.491% at 3 p.m. Eastern on Friday. Based on 3 p.m. levels, the yield on Friday was the highest since May 6, 2019. The yield rose 34.5 basis points last week, its largest weekly rise since the week ended Sept. 13, 2019, according to Dow Jones Market Data. -
The 2-year Treasury note yield
TMUBMUSD02Y,
2.315%
stood at 2.307% versus 2.299% on Friday afternoon, which was also its highest since May 6, 2019. The short-dated Treasury yield jumped 34.4 basis points last week for its biggest weekly rise since the week ended June 5, 2009. -
The 30-year Treasury bond yield
TMUBMUSD30Y,
2.568%
was 2.577%, down from 2.603% late Friday, when it traded at its highest since July 25, 2019. The long bond’s yield rose 18.6 basis points last week.
Market drivers
Portions of the yield curve, a line plotting rates across all maturities, continued to invert, with the yield on the 5-year note at 2.572% and the 3-year at 2.555%, surpassing the 10-year rate. The 5-year yield briefly traded above the 30-year rate, marking the first inversion of that portion of the curve since 2016, analysts said.
An inversion of the 10-year/2-year spread is seen as a reliable warning sign of future recession. The 10-year yield remains above the 2-year yield for now.
Read: The yield curve is speeding toward inversion — here’s what investors need to know
The 2022 selloff in Treasurys accelerated last week, sharply pushing up yields, which move the opposite direction of price. Government bonds this year on pace to produce their worst returns since 1949, according to a Friday note from Bank of America, which tracked global bonds weighted by world gross domestic product.
Treasury yields jumped last week as expectations for half-point rate increases from the Federal Reserve grew following remarks by Chairman Jerome Powell and other policy makers. Powell last Monday said the central bank was prepared to lift rates by more than the usual quarter of a percentage point increment if necessary to rein in inflation, a position echoed by some other policy makers.
Meanwhile, measures of market liquidity showed signs of stress in the Treasury market last week.
In One Chart: U.S. Treasury market plagued with illiquidity as government bonds suffer worst week in years
Investors continued to track developments around Russia’s invasion of Ukraine. Ukraine President Volodymyr Zelensky said his country was “ready” to discuss neutral status with Moscow, while Russia offered little hope of an agreement, the New York Times reported. Russia late last week signaled it was shifting its war aims in Ukraine to focus on the eastern portion of the country after its attempt to take the capital Kyiv stalled.
The White House, meanwhile, walked back a remark Saturday by President Joe Biden, who said at the end of a speech in Poland that Putin couldn’t remain in power.
China on Monday began locking down most of Shanghai, the nation’s financial capital and a city of 26 million, as a coronavirus outbreak surged. Oil futures fell sharply in response on expectations the lockdown will undercut Chinese demand for crude.
The economic calendar for Monday is light, with data on advance trade in goods for February due at 8:30 a.m. Eastern. The Treasury Department will sell $50 billion in 2-year notes.
What analysts say
“The 2-year, in particular, is a tough spot on the curve because of the unknown prospects for 50 bp (basis point) rate hikes,” said Thomas Simons, money market economist at Jefferies, in a note on Monday.
“Fed speakers have been talking about trying to front-load the removal of accommodation, hence the big sell off since last month, but the specific timing of rate hikes over the next 2 years has implications for the valuation of the 2-year. We expect that the market is going to continue to price in greater chance of 50 bp hikes over time, so we are not expecting a strong auction here today,” he wrote.
