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Yields for U.S. government debt on Monday were headed higher to kick off the week of Thanksgiving trading, with Treasury markets closed on Thursday in observance of the holiday and due to be cut short Friday. Some market participants attributed to rise in yields to comments from the Fed’s No. 2.
Meanwhile, investors are anticipating important news about the leadership of the Federal Reserve against the backdrop of lighter holiday volumes.
What are yields doing?
-
The 10-year Treasury note
TMUBMUSD10Y,
1.574%
yields 1.579%, up from 1.535% on Friday at 3 p.m. Eastern Time. -
The 2-year Treasury note
TMUBMUSD02Y,
0.537%
was yielding 0.537% from 0.503% at the end of last week. -
The 30-year Treasury bond yield
TMUBMUSD30Y,
1.945%
was at 1.940%, compared with 1.906% on Friday afternoon.
What’s driving the market?
Yields for government debt rose on Monday, as investors continued to process climbing inflation in the aftermath of COVID-19 and await President Joe Biden’s pick for Fed boss.
On Friday afternoon, Federal Reserve Vice Chairman Richard Clarida said, speaking at an event hosted by the San Franciso Fed, that it “may very well be appropriate” to discuss accelerating the Fed’s tapering of asset purchases when it convenes its final meeting of 2021 next month.
“The rapid improvement in the labor market and the deteriorating inflation data have pushed me towards favoring a faster pace of tapering and a more rapid removal of accommodation in 2022,” Clarida said.
Meanwhile, the selection of a Fed leader comes down to Jerome Powell, whose current term as Fed Chairman expires in February, and Fed Gov. Lael Brainard. The decision comes as President Biden attempts to find support for his social spending package.
The decision on the Fed boss is expected to occur before Thanksgiving, with Biden scheduled to deliver a speech on the state of the economy at the White House on Tuesday.
In Europe, yields for government debt rose, despite concerns about the spread of COVID-19 in parts of the country, including Austria, which entered its fourth lockdown, and Germany. Germany’s benchmark 10-year bond
TMBMKDE-10Y,
known as the bund, was yielding negative 0.332%, compared with negative 0.339% on Friday.
In U.S. economics news, investors may parse a report on U.S. economic activity, the Chicago Fed National Activity Index at 8:30 a.m. ET. The report from the Federal Reserve Bank of Chicago is composed of 85 economic indicators drawn from four broad categories of data, including production and income; employment, unemployment and hours; personal consumption and housing; and sales, orders and inventories.
A positive reading corresponds to growth above historical trend and a negative one signals below-trend expansion. October’s national activity is expected to rise to 0.90, compared with minus 0.13 in September, which marked the first negative reading in five months.
Separately, a report on existing home sales for October is due at 10 a.m., with economists’ forecasting a rise of 6.2 million annual rate from 6.290 million in September.
On the supply front, an auction of $58 billion in 2-year notes is scheduled for 11 a.m., followed by $59 billion in 5-year Treasurys
TMUBMUSD05Y,
at 1 p.m. The auctions will be watched by investors for the impact on the broader bond market.
What analysts are saying
- “The inflation risk for 2022 is that with the lid off goods prices and a strong profit year in 2021, the nation is set for broad wage gains in the coming year — gains to date that have gone where workers are in short supply,” wrote Steven Blitz, chief U.S. economist at TS Lombard, in a Monday note. “The only way for the Fed to counter this inflation, without damaging the recovery and, more importantly, the equity market, is to ramp up the dollar. Rhetoric about raising the funds rate, supported by accelerating the taper, accomplishes this goal.”
