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U.S. Treasury yields inched higher on early Tuesday as global equities stayed buoyant amid hopes that the reopenings of economies across the world would revive international growth from its doldrums.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 0.671% rose 2.2 basis points to 0.684%. The 2-year note rate TMUBMUSD02Y, 0.164% was unchanged at 0.160%, while the 30-year bond yield TMUBMUSD30Y, 1.471% added 2.4 basis points to 1.479%.
What’s driving Treasurys?
Bond traders continued to pile on to bets that the spread between long-term and short-term yields would widen amid expectations that the U.S. and global economy recovery was getting off the ground, and that the central bank would keep short-term rates capped for a long time.
Futures for the S&P 500 ES00, +0.31% and Dow Jones Industrial Average YM00, +0.45% pointed to a higher open for U.S. equities on Tuesday.
The yield gap between the 2-year note and the 10-year note expanded to 52 basis points, and on another important gauge of the yield curve, the 5 year/30-year spread widened to 117 basis points.
A wider gap, or steeper yield curve, can reflect when investors are anticipating economic growth and inflationary pressures, which can dent the prices of longer-term bonds more so than their shorter-term counterparts. This results in the long-dated debt yields rising more quickly than short-dated yields.
At the same time, the yield-curve steepening could reflect growing expectations that the Federal Reserve would enact some type of yield targeting policies like those seen in Japan. Such measures can steepen the yield curve by fixing short-term rates at a low level through bond purchases.
Read: Here’s what the Fed will do next, according to a Goldman Sachs economist
Investors won’t handle any first-tier economic data on Tuesday, but the rest of the week will see the release of the ISM’s services index and the official jobs report.
What did market participants’ say?
“As the economy begins the recovery phase of the new business cycle upturn in the weeks ahead, we expect credit spreads will continue to narrow and the [yield] curve to steepen as deflation risks subside,” said Steven Ricchiuto, U.S. chief economist for Mizuho.
