Bond Report: Treasury yields build on rebound as 10-year nears 1.30%

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Treasury prices remained under pressure Thursday, with the yield on the 10-year note rising to 1.30% after dipping to a five-month low at the beginning of the week.

European yields were mostly lower, meanwhile, as investors awaited a European Central Bank policy statement.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.294%

    rose 1.9 basis points to 1.301%. Yields and debt prices move in opposite directions.

  • The 2-year Treasury note yield
    TMUBMUSD02Y,
    0.213%

    was up 0.8 basis point at 0.214%.

  • The 30-year Treasury bond yield
    TMUBMUSD30Y,
    1.941%

    gained 1.8 basis points to 1.949%.

What’s driving the market?

Investors will track a meeting of the European Central Bank, which is expected to leave policy unchanged but maintain a dovish stance after they tweaked their inflation target in a strategy review two weeks ago. The ECB, which previously aimed to keep inflation near but just below 2%, now has a symmetric target at 2%.

The ECB will release a policy statement at 1:45 p.m. Frankfurt time, or 7:45 a.m. Eastern, that’s expected to adjust its forward guidance in keeping with the change in the target. ECB President Christine Lagarde’s news conference follows at 8:30 a.m.

The yield on the benchmark 10-year German government bond
TMBMKDE-10Y,
-0.406%

was down 0.4 basis point at -0.394%.

Some U.S. jobs figures are also on tap, with the release at 8:30 a.m. of weekly data on applications for employment benefits. Economists expect first-time claims to fall to have fallen to 348,000 in the week ended July 17 from 360,000 the previous week.

Data on existing home sales and leading economic indicators are also scheduled for Wednesday.

What are analysts saying?

“All in all, we do not expect the [ECB] meeting outcome to lead to meaningful changes in EGB (European government bond) yield levels or the shape of the curve,” wrote analysts at UniCredit Bank, in a note.

“The meeting comes as the market environment has been quite supportive for fixed-income markets and this makes it difficult to judge how much of today’s message is already priced in but it is likely that EGB yields will be driven more by international factors than ECB rhetoric in the coming weeks,” they said.

As for Treasurys, the bounce in yields “reinforces the notion that the bullish price action will need further fundamental justification to proceed” and is unlikely to come before next week’s Fed meeting and any hints the spread of the delta variant of the coronavirus that causes COVID-19 have altered policy makers’ stance, wrote analysts Ian Lyngen and Ben Jeffery of BMO Capital Markets.

“We’re encouraged by the backup in yields as it allows for a fresh round of position-squaring and given how shallow the move has been, it is also constructive for our lower rates thesis going forward,” they said.

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