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Bond Report: Treasury yields on track for weekly decline as growth worries rise

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Treasury yields edged lower Friday, with long-dated rates on track for a weekly decline as the spread of the delta variant of the coronavirus that causes COVID-19 contributes to unease over the global growth outlook.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.233%

    was at 1.233%, down from 1.241% at 3 p.m. Eastern on Thursday. Yields and debt prices move in opposite directions.
  • The 2-year Treasury note yield
    TMUBMUSD02Y,
    0.218%

    was at 0.214% versus 0.218% late Thursday.
  • The 30-year Treasury bond yield
    TMUBMUSD30Y,
    1.859%

    fell to 1.865%, compared with 1.877% on Thursday.

The 10-year yield ended last week at 1.297%, while the 2-year yield was at 0.215% and the 30-year rate stood at 1.948%.

What’s driving the market?

The continued spread of the delta variant has started to chip away at growth expectations. Yields fell Thursday as global investors took a defensive stance, dumping commodities and sending overseas equities sharply lower.

Read: Delta variant is creating cascade of reasons to question U.S. recovery in the second half

U.S. stocks ended up putting in a mixed performance Thursday, but saw a defensive rotation, with sectors and styles more sensitive to the economic cycle left behind. Stock-index futures pointed to a lower start for U.S. equities Friday.

See: Investors ‘want answers — and they want it immediately,’ says bond portfolio manager about delta variant

Meanwhile, attention is turning toward next week, particularly the Kansas City Federal Reserve Bank’s annual symposium in Jackson Hole, Wyoming. The high-profile event will be watched for clues from policy makers on the timing of the Fed’s plans to begin tapering its monthly asset purchases. Minutes of the Fed’s July policy meeting showed “most” members were in favor of beginning the process this year.

The economic calendar Friday is light. Dallas Fed President Robert Kaplan, who has previously called for a quick start to the tapering process, speaks at 11 a.m. Eastern. Kaplan isn’t a voting member of the policy setting Federal Open Market Committee this year or in 2022.

What are analysts saying?

“Today could go one of two ways,” said Kit Juckes, global macro strategist at Société Générale, in a note.

“Either, typical of COVID-era Fridays, markets will be quiet and everyone will metaphorically head for the beach early; or, growth concerns will take hold in earnest and we’ll see dollar strength, equity weakness, commodity price falls continue and bond yields will drift down in anticipation that the Fed uses ‘the delta variant’ as justification for hinting that tapering may be pushed back,” he said.

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