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Bond yields fell on Monday as unrest in China sparked worries about prospects for the global economy.
What’s happening
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.471%
slipped 2.9 basis points to 4.451%. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.688%
retreated 1.8 basis points to 3.670%. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.725%
fell 2.1 basis points to 3.720%.
What’s driving markets
Investors were moving into government bonds as widespread COVID-19 unrest in China raised concerns about global economic growth.
Benchmark 10-year Treasury yields flirted with their lowest levels since mid September, with downward pressure also supplied by hopes the U.S. Federal Reserve – as shown by last week’s minutes of its recent policy meeting – will slow the pace of interest rate rises.
However, likely ameliorating the decline in yields was news that the start of the U.S. festive shopping season had started strongly, suggesting there was to date little sign that consumers are reining in spending despite the Fed’s attempts to cool the economy.
Markets are pricing in a 72% probability that the Fed will raise interest rates by another 50 basis points to a range of 4.25% to 4.50% after its meeting on December 14th, according to the CME FedWatch tool. The central bank is expected to take its Fed funds rate target to 5% by June 2023, according to 30-day Fed Funds futures.
St. Louis Fed President James Bullard is scheduled to talk to MarketWatch at noon Eastern. New York Fed President John Williams is due to make a speech at the same time.
There is no economic data of note on Monday. But there will be a wave of information about the health of the U.S. economy later in the week, including home prices data and a consumer confidence index on Tuesday; the ADP employment report, the revision to third quarter GDP and the Fed’s Beige Book on Wednesday; manufacturing PMIs and the personal consumption measure of inflation on Thursday; finishing off with the nonfarm payrolls report on Friday.
What are analysts saying
“The risk-off mood overnight is driving strong safe haven flows into U.S. Treasuries, as the 10-year benchmark traded to new local lows below 3.65%, with little room left to the pivotal 3.50% level,” said the strategy team at Saxo Bank in a morning note.
“The 2-10 yield slope hit a new cycle extreme of –80 basis points overnight, a deepening indication of an oncoming recession. The 3-month treasury bills vs 10-year treasury notes spread went to minus-64bps, a level usually seen within 12 months preceding the onset of a recession,” Saxo added.
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