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Treasury yields were mostly lower on Wednesday, after rising by the most in about two weeks in the prior session, as markets weigh the economic impact of the omicron variant of the coronavirus as well as higher inflation.
Bond markets will close an hour early Thursday and will remain closed in observance of Christmas on Friday.
What are yieldings doing?
-
The 10-year Treasury note
TMUBMUSD10Y,
1.463%
yields 1.449%, down from 1.487% at 3 p.m. ET on Tuesday. -
The 30-year Treasury bond rate
TMUBMUSD30Y,
1.866%
was at 1.858%, compared with 1.896% on Tuesday afternoon. -
The 2-year Treasury note yield
TMUBMUSD02Y,
0.678%
was at 0.667%, versus 0.673% a day ago.
What’s driving the market?
Yields were flat to lower Wednesday, as concern about rising COVID cases eased following an outline of plans from the Biden administration to fight the spread of the virus.
Preliminary reports that COVID-19 vaccines could still prove effective against the omicron variant also helped to stem the risk-off mood that had helped to color trade at the start of the week.
Meanwhile, scientists in South Africa have noted a significant drop in new COVID-19 cases which could signal the omicron wave has passed its peak, but the holiday period remains overshadowed by the new variant that is causing case spikes in the U.S. and Europe, and could result in new business and consumer restrictions.
Updated data released Wednesday showed that the U.S. economy expanded at an annual 2.3% pace in the third quarter, up from the prior estimate of 2.1%. A consumer confidence report from the U.S. Conference Board and data on November existing home sales due at 10 a.m. ET.
Looking ahead, investors will be watching a reopening auction of $17 billion in 5-year U.S. Treasury inflation-protected securities, or TIPS, set for 1 p.m. ET, which could help to gauge the markets view on inflation, with yields for shorter-dated TIPS in negative territory.
Federal Reserve officials are planning to end their bond purchases by March, much faster than previously expected. At their December meeting, policy makers also penciled in three interest rate increases for next year in the so-called dot plot, while keeping their long-run projection for the fed-funds rate, which currently stand at a range between 0% and 0.25%, at 2.5% and raising their inflation forecasts through 2023.
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What strategists are saying
“ After a 15-bp zip from low to high rates this week, the 10-yr UST returns to its technical comfort zone, and 5 [year Treasurys] are aligned again with multiple rate hikes the next two years,” wrote Jim Vogel, executive vice president at FHN Financial, in a Wednesday note. “The reopening auction for 5-year TIPS today will center around -1.5%, a level that indicates a continued premium to protect against rising inflation. Based on implied Fed policy alone, yields should be more negative, something clearly visible in the higher currency adjusted rates on mid-term Treasuries vs their EU counterparts,” Vogel wrote.
