Bond Report: U.S. Treasury yields hold ground as worsening pandemic picture gives bond market ‘reality check’

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U.S. Treasury yields held their ground Friday, capping a tumultuous week for the bond market put under pressure by positive vaccine developments.

But a worsening COVID-19 pandemic and limited signs of inflationary pressures limited the rise in bond yields this week.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.894% was up 0.7 basis point to 0.892%, adding to a 7.1 basis point weekly increase, while the 2-year note rate TMUBMUSD02Y, 0.181% held at 0.177%, keeping a 2.4 basis point weekly rise intact. The 30-year bond yield TMUBMUSD30Y, 1.648% was virtually unchanged at 1.649%, and up 5 basis points this week.

What’s driving Treasurys?

Treasurys struggled to extend their weekly selloff amid worries that an acceleration of COVID-19 cases would slow the economy’s recovery. Cities and local governments are imposing new restrictions on business and social activity in efforts to stem the pandemic.

New York Federal Reserve President John Williams said the recent surge in bond yields was due to the positive news that Pfizer and BioNTech’s COVID-19 vaccine candidate was 90% effective at preventing the disease.

Williams said a stronger-than-expected economy could bring future interest rate hikes by the Fed forward. He also added he was worried about the downside pressure on inflation. His remarks came after U.S. consumer price inflation came in flat last month.

See: Fed’s Williams says recent rise in Treasury yields is due to vaccine news, not inflation concerns

In U.S. economic data, October producer prices rose 0.3%. An index of consumer sentiment for November came in at 77, from 81.8 in the previous month.

What did market participants say?

“This week’s sobering COVID/fiscal news, coupled with very weak inflation data, have acted as a reality check for the rates market,” said Aneta Markowska, chief financial economist for Jefferies.

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