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U.S. Treasury yields were edging lower in the final session of the year, with buying in government debt finding some support amid renewed jitters about the rapid spread of omicron, even if evidence shows that the latest strain of the virus that causes COVID-19 produces milder symptoms.
The bond market will close an hour early on Friday in observance of the New Year’s Day holiday but other markets observe regular trading hours.
What are yields doing?
-
The 10-year Treasury note
TMUBMUSD10Y,
1.505%
yields 1.504%, down from 1.514% on Thursday at 3 p.m. Eastern Time. -
The 30-year Treasury bond rate
TMUBMUSD30Y,
1.914%
was at 1.912%, retreating from 1.924% a day ago. -
The 2-year Treasury note yield
TMUBMUSD02Y,
0.730%
was at 0.726%, off from 0.738% on Wednesday afternoon. - For the month, the quarter and the year so far, the 2-year Treasury note is up 21.4 basis points, up 44.9 basis over the past three months, and 61.9 basis points in 2021; the 10-year Treasury is up 7.4 basis points in December, 1.4 basis points on the quarter and 60.1 basis points in the year to date.
- Both the 10-year and 30-year bonds are on track for their largest yearly gains since 2013.
- The 2-year note is on pace for its largest annual yield rise since 2017 and its largest quarterly gain since 2008 and its largest monthly rise since 2018.
What’s driving the market?
Bond yields were edging lower on Friday, in the final trading day of the year, with the market facing thin volumes due to the New Year’s holiday.
Yields have risen over the course of 2021 as investors attempted to gauge in the durability and intensity of inflation, which has been sparked by COVID-inspired supply-chain bottlenecks and labor shortages, combined with a surge in demand spurred by fiscal stimulus.
At least one strategist is predicting that next year the yield on the benchmark 10-year Treasury will climb only modestly in 2022, ending the year in a range of 1.75% to 2%, according to Lawrence Gillum, fixed-income strategist at LPL Financial.
However, predicting yields over the past several years has proved to be a fool’s errand and it is unclear in 2022 how the Federal Reserve will combat inflation.
At its mid December meeting, the Fed staged what has been described as a hawkish pivot, hastening the wind down of its monthly bond purchases, with the goal to end the program by March, before commencing what markets estimate will be three benchmark interest rate hikes in 2022. The Fed will next meet on Jan. 25-26.
On Friday, concerns about the virus were reminding investors of the challenges facing Wall Street next year. COVID infections are rising in parts of the world. The seven-day average of new cases in the U.S. has risen to 344,543 on Thursday, up from 301,477 on Wednesday.
There is no U.S. economic data on Friday but market participants will be looking toward a manufacturing report next week from the Institute for Supply Management and minutes from the Fed’s December meeting.
What strategists are saying
“Looking ahead to 2022, yields remain front and center. We’d expect to see 10-year yields break free from the tight range they’ve been trapped in during the early part in the new year and we’re still in the camp that thinks they breakout higher,” wrote Jeff deGraff, analyst at Renaissance Macro Research.
