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Bond Report: Treasury yields inch higher as U.S. stocks stretch further into record territory

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Long-dated Treasury yields edged higher Tuesday as the S&P 500 and Nasdaq Composite indexes extended their climbs into record territory, and as the U.S. House Democrats closed in on a vote for President Joe Biden’s infrastructure and social-spending packages.

Meanwhile, an auction of $60 billion in 2-year notes produced strong buy-side demand, according to Jefferies LLC.

What yields are doing
  • The 10-year Treasury note yields
    TMUBMUSD10Y,
    1.291%

    1.289%, compared with 1.254% on Monday at 3 p.m. Eastern Time. Yields for government debt move opposite to prices.
  • The 2-year Treasury note yields
    TMUBMUSD02Y,
    0.234%

    0.224%, unchanged from a day ago.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    1.914%

    was yielding 1.906%, compared with 1.872% on Monday.
What’s driving the market?

U.S. stocks traded higher Tuesday, with the S&P 500 Index
SPX,
+0.15%

and Nasdaq Composite Index
COMP,
+0.52%

both on track for record finishes as bulls continued to find fuel in the U.S. Food and Drug Administration’s approval yesterday of the first COVID-19 vaccine. Meanwhile, the Democratic-run House continued to work on making a deal that would advance President Joe Biden’s big spending plans.

The move in equities extended the gradual increase of appetite for risk ahead of the annual Jackson Hole central bankers symposium this week. Federal Reserve Chairman Jerome Powell is the featured speaker on Friday morning.

Fixed-income investors are doubtful that Powell will offer clarity on the timing and scope of a pullback of the central bank’s monthly purchases of Treasurys and mortgage-backed securities, which have served as stimulus for the markets since the spread of COVID-19 in the U.S. began in the spring of 2020.

Growing numbers of U.S. government and employer vaccine mandates, along with some evidence that new daily cases of the highly transmissible coronavirus delta variant are cresting, may also be contributing to less haven purchases and a softer demand for Treasurys.

On the U.S. economic front, sales of new homes in the U.S. rebounded in July after three consecutive months of declines. New-home sales increased 1% to an annual rate of 708,000, the government said Tuesday. 

Meanwhile, Treasury’s sale of $60 billion in 2-year notes produced “extremely strong” buy-side demand, with indirect bidders taking down the largest share since June 2009, according to economists Thomas Simons and Aneta Markowska at Jefferies LLC.

What analysts are saying
  • “Moving Jackson Hole back to an entirely virtual format this year is telling us that Fed officials are taking the Delta variant seriously,” said LPL Financial fixed income strategist Lawrence Gillum. “We’ll have to see if that alters the tapering timeline and importantly the market’s expectations for when the Fed will start to increase short-term interest rates.”
  • Recent yield action is being driven by the potential for more fiscal stimulus, according to Greg Staples, head of fixed income for the Americas at DWS Group. If the Democrats retain unity and are able to advance the full reconciliation package, the 10-year rate can move quickly to 1.75-2.00%, he wrote in an email. And if not, the yield will trade in a lower range.

: House advances measure on Biden’s spending plans in 220-212 vote

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