Bond Report: Treasury yields edge up as omicron fears ease and Fed meeting next week looms

United States

U.S. Treasury yields edged up again Tuesday morning, as fears about the economic impact of omicron variant of the coronavirus eased, while investors awaited the possibility of the Federal Reserve reducing its bond purchases at a faster pace at its policy meeting next week.

What are yields doing?
  • The 10-year Treasury note TMUBMUSD10Y, 1.450% yields 1.437%, up slightly from 1.433% on Monday at 3 p.m. Eastern Time.
  • The rate for the 30-year Treasury TMUBMUSD30Y, 1.772%, known as the long bond, was at 1.765%, up from 1.758%.
  • On Monday, the 10- and 30-year Treasurys saw their biggest one-day yield gains since Nov. 10.
  • The 2-year Treasury note yield TMUBMUSD02Y, 0.675% was at 0.659%, compared with 0.633% on Monday afternoon. On Monday, the 2-year, which is more sensitive to shifts in interest-rate expectations, hit its highest rate since Nov. 24,
What’s driving the market?

Stocks and commodities were rallying on Tuesday, putting pressure on safe-havens such as government bonds, with the Dow Jones Industrial Average DJIA, +1.87%, the S&P 500 index SPX, +1.17% and the Nasdaq Composite COMP, +0.93% poised for another day of strong gains, on hopes that the omicron variant of the coronavirus that causes COVID-19 will be less severe and therefore less harmful to the global economic recovery.

Investors were also taking some comfort in the People’s Bank of China’s decision on Monday to reduce the reserve requirement ratio for banks by 0.5 percentage point to 8.4%, starting Dec. 15.

Those factors combined have put some pressure on Treasury yields, but returns on government debt still remain relatively low considering that the Federal Reserve next week is likely to announce a plan for faster tapering of its monthly bond purchases to combat surging inflation.

See: Fed is widely seen backing a faster taper next week

However, Treasurys have drawn some bids because fixed-income investors have been positioning as if the Fed will make a policy mistake that hurts the economy.

The Fed’s next policy gathering is set for Dec. 14-15 and policy makers are in a media blackout period until then.

Looking ahead, investors will be watching a report on U.S. international trade at 8:30 a.m., as well as data on productivity and costs.

Meanwhile, an auction of $ 54 billion in 3-year notes TMUBMUSD03M, 0.058% is scheduled for 1 p.m. ET.

What strategists are saying
  • “Treasury prices are a bit weaker on lighter flows…We continue to look for higher yields ahead of the Fed taper between now and in early 2022,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global securities, in a daily note.