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Treasury yields continued to push higher early Thursday, extending a rise that followed the release of minutes from the Federal Reserve’s December meeting, which showed policy makers discussed not only more aggressive rate increases than previously anticipated, but also talked about the possibility of shrinking the central bank’s $8.67 trillion balance sheet.
What are yields doing?
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The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.737%
rose to 1.73%, up from 1.703% at 3 p.m. Eastern on Wednesday. Through Wednesday, the yield has risen 20.7 basis points to begin 2022. Yields and debt prices move opposite each other. -
The 2-year Treasury yield
TMUBMUSD02Y,
0.853%
rose to 0.862%, up from 0.828% Wednesday afternoon. The 2-year rate ended Wednesday at its highest since Feb. 28, 2020. -
The 30-year Treasury bond
TMUBMUSD30Y,
2.124%
was up 3.8 basis points at 2.126%, compared with 2.086% late Wednesday.
What’s driving the market?
A selloff in Treasurys accelerated after the afternoon release of the minutes from the Dec. 14-15 meeting, which showed policy makers felt it might be necessary “to increase the federal-funds rate sooner or at a faster pace than participants had earlier anticipated.” The summary also showed that Fed officials had a wide-ranging discussion of how to move policy away from its current easy stance by hiking rates and shrinking its $8.67 trillion balance sheet.
Read: Fed minutes paint a picture of a central bank ready to swiftly abandon its easy policy stance
The sharp rise in yields had reverberations across markets, with growth-oriented equities, which are more sensitive to rate moves, extending a sharp selloff. Stock-index futures pointed to further losses for growth stocks after the tech-heavy Nasdaq Composite
COMP,
fell 3.3% for its worst one-day fall since Feb. 25.
Investors on Thursday will sift through a busy mix of economic releases, including weekly jobless claims at 8:30 a.m, and the Eastern and the Institute for Supply Management’s December reading on activity in the services sector at 10 a.m.
St. Louis Fed President James Bullard, a 2022 voting member of the rate-setting Federal Open Market Committee, is set to talk about the economy at 1:15 p.m.
Traders may also position ahead of Friday’s December jobs report. Economists surveyed by The Wall Street Journal look for nonfarm payrolls to show a rise of 422,000, with the unemployment rate falling to 4.1% from 4.2%. Economists say risks to the jobs reading are skewed to the upside after a much stronger-than-expected reading Wednesday on December private-sector jobs from ADP.
What are analysts saying?
With the minutes out of the way and 10-year yields topping 1.70%, “attention will shift to Friday’s employment report. Despite a stretched technical profile, our bearishness remains intact — after all, this move is much more fundamental, Fed, and positionally driven than it is tactical,” wrote strategists Ian Lyngen and Ben Jeffery at BMO Capital Markets. “As a result, 1.75% in 10s is vulnerable in the near term, as is the 1.77% cycle peak. The former could give way before payrolls, but for fresh cycle highs in 10s, the market will most likely require the impetus of a strong read from the labor market and/or yet another solid inflation read via Wednesday’s CPI release.”
