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Bond Report: Long dated Treasury yields see biggest one-day gains in more than two weeks

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U.S. Treasury yields edged higher Wednesday, pushing the 10- and 30-year maturities to their highest in nearly two weeks, as major stock indexes extended their record ascent.

Meanwhile, an auction of $61 billion U.S. five-year notes saw only moderate demand.

What yields are doing
  • The 10-year Treasury note yields
    TMUBMUSD10Y,
    1.344%

    1.342%, compared with 1.289% at 3 p.m. Eastern Time on Tuesday.
  • The 30-year Treasury bond rate
    TMUBMUSD30Y,
    1.952%

    was at 1.958%, versus 1.906% a day ago.
  • Both the 10-year and 30-year Treasury rates had their largest one-day gain in more than two weeks, and were at their highest since Aug. 12, based on 3 p.m. levels, according to Dow Jones Market Data.
  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.230%

    was yielding 0.243%, compared with 0.224% Tuesday.
What’s driving the market?

Yields drifted higher as the S&P 500
SPX,
+0.22%

and Nasdaq Composite
COMP,
+0.15%

indexes stretched into record territory once again, while the Dow Jones Industrial Average
DJIA,
+0.11%

also gained some momentum. Strong second-quarter corporate earnings is offseting doubts about the pace of economic recovery.

The moves came ahead of the annual Jackson Hole gathering of central bankers, which is being held virtually this year due to the spread of the delta variant of COVID-19. Federal Reserve Chairman Jerome Powell is scheduled to deliver a key speech at the event, but expectations for it have shifted significantly.

Investors have been playing down expectations that Powell will provide any fresh insights on the central bank’s tapering of asset purchases, until the rate-setting Federal Open Market Committee’s Sept. 21-22 meeting.

Meanwhile, fixed-income investors noted that the U.S. House late Tuesday approved a $3.5 trillion budget proposal and locked in a late September vote on an important $1 trillion infrastructure bill already passed by the Senate.

In U.S. economic data, orders for long-lasting goods fell in July for only the second time in 15 months, but the weakness was mostly in new airplanes. Demand was strong in other parts of the economy despite broad shortages of labor and materials. Orders for durable goods slipped 0.1% last month, the government said Wednesday. Economists polled by the Wall Street Journal had forecast a 0.5% decline.

Yields were little changed across the curve after Wednesday’s $61 billion sale of 5-year notes
TMUBMUSD05Y,
0.824%
,
which produced a small tail of 0.1 basis points, according to strategist Ben Jeffery of BMO Capital Markets.

Outside the U.S., the Ifo business climate index, highlighted the weakness of Germany’s economy relative to European peers, declining for the second month in a row in August, underscoring lingering concerns about the spread of the delta variant.

What analysts are saying
  • “Jackson Hole is more about cerebral theorizing and less about tactical announcements,” said Bruce Monrad, portfolio manager at Northeast Investors Trust. “It’s not an FOMC meeting, so making a tactical announcement would open up the chairman to questions about what has changed since the July meeting that prompted the change in policy.”
  • “Not much will be said about tactics coming out of JH,” said Rich Sega, global chief investment strategist at Conning. There are two major uncertainties that FOMC members still have to ponder, both of which are driven by their heavy focus on employment: “One is that the full effect of the expiration of supplemental UE payments and the subsequent flow of employees back to work won’t be known by this week and may not be until October after everything ends (and isn’t replaced by something new) in September. The other is the effect of policy responses to the Delta variant.”
  • “The IFO said ‘In the hospitality and tourism sectors in particular, concerns are growing,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group, in a note. “On the other hand, companies rated the current situation somewhat better than in the previous month,” he said. “A stagflationary situation. The euro is down slightly but bond yields are higher along with the slow creep up in US Treasury yields with the US 10 yr at 1.30%,” he added.

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