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U.S. Treasury yields climbed early Monday as investors awaited an important speech from a key policy maker in Jackson Hole, Wyoming, later this week, which could provide the clearest insights yet about the timetable and pace of rolling back COVID-era accommodations.
What yields are doing
-
The 10-year Treasury yield
TMUBMUSD10Y,
1.276%
rose to 1.276%, compared with 1.259% at 3 p.m. Eastern Time on Friday. -
The 2-year Treasury note rate
TMUBMUSD02Y,
0.230%
was at 0.230%, versus 0.224% at the end of last week. -
The 30-year Treasury bond yield
TMUBMUSD30Y,
1.891%
was at 1.892%, compared with 1.873% on Friday.
On Friday, the 10- and 30-year rates posted their biggest one-week declines since July, according to Dow Jones Market Data. Meanwhile, the 2-year rate was higher on the week.
What’s driving the market?
Monetary policy makers from around the world are set to gather in the Wyoming resort town for the Aug. 26 kickoff of the annual symposium hosted by the Kansas City Federal Reserve Bank.
On Friday, fixed-income investors learned that event will shift entirely to virtual, raising the prospects for some that Federal Reserve Chairman Jerome Powell will be disinclined to signal that tapering of monthly purchases of $120 billion of Treasurys and mortgage-backed securities is in the offing.
COVID cases, driven by the spread of the delta variant, have been on the rise since early July alongside a global increase in infections, and market participants around the world have taken notice, as has the Fed.
Although many investors had believed that the Fed would be willing to hint at tapering at the Jackson Hole meeting, developments in the spread of COVID-19 are casting some doubt on the timing of any such announcement.
Dallas Fed President Robert Kaplan, one of the most vocal proponents for beginning and finishing the tapering process early, on Friday said that he would be open to changing his thinking if evidence emerges that the spread of the delta variant is slowing the economy.
The prospects of a sluggish recovery from the pandemic is one reason why yields, which move opposite to Treasury prices, have been relatively subdued despite growing evidence of percolating inflation and signs that the Fed wants to end easy-money policies.
Against that backdrop, Powell’s speech at Jackson Hole, set for Friday at 10 a.m. Eastern Time, will be highly anticipated. Analysts have been bracing for an announcement on tapering before the end of the year.
Separately, U.S. Treasury Secretary Janet Yellen has told senior White House advisers she backs reappointing Powell, whose term expires in February, as Fed chairman, according to Bloomberg News. Yellen preceded Powell as Fed chief.
Looking ahead, investors will be watching for reports on economic health, including the Chicago Fed National Activity Index at 8:30 p.m. Eastern Time, while flash readings of services and manufacturing activity from Markit are set for 9:45 a.m., with a composite reading of 59.5 expected from 59.7 prior, and 63.1 and 59.7 estimated from manufacturing and services, respectively. A report on existing homes sales is due at 10 a.m.
What analysts are saying
“We think Fed Chair Powell will likely use his Jackson Hole speech to build the case that the Fed is getting ever closer to meeting the ‘substantial further progress’ test for tapering QE but will not set out a taper plan or tee up a taper decision at the next FOMC meeting in September — consistent with our call that the decision will likely come in November,” wrote Evercore ISI strategists Krishna Guha and Peter Williams.
“Separately we interpret media reports over the weekend as signaling that Powell is increasingly likely to be reappointed Fed chair, and that an announcement could come sooner than is widely expected. Obama chose to renominate Bernanke for a second term around Jackson Hole, and it is not impossible Biden could do the same thing,” the strategists wrote.
