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U.S. Treasury yields edged higher in early Tuesday’s trade, ahead of data on U.S. factory activity, though concerns remain that the COVID-19 pandemic has blunted the economic recovery.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 0.717% rose 2.7 basis points to 0.720%, while the 2-year note rate TMUBMUSD02Y, 0.125% held at 0.134%. The 30-year bond yield TMUBMUSD30Y, 1.484% climbed 4.4 basis points to 1.496%. Bond prices move in the opposite direction of yields.
What’s driving Treasurys?
An August reading from the Institute for Supply Management’s index of U.S. manufacturing will draw close attention from market participants. MarketWatch-polled analysts forecast an increase to 54.7, slightly up from July’s 54.2 reading. Any number above 50 represents an increase in industrial activity.
Yields slipped on Monday as portfolio managers engaged in month-end rebalancing, that is, buying Treasurys to ensure the maturities of their overall holdings were not too far away from the average maturity of their benchmark index.
Investors are also eyeing the steady rise in inflation expectations embedded in Treasury inflation-protected securities after the Federal Reserve’s policy review resulted in the central bank moving to an average inflation target of 2%, allowing price levels to overshoot to make up for periods when inflation fell short.
What did market participants’ say?
“Long-term rate will rise as the year progresses simply because the risk premium in the market will dissipate as it becomes clear the recovery will morph into a self-sustaining but shallow expansion,” said Steven Ricchiuto, U.S. chief economist at Mizuho.
