Bond Report: Treasury yields slide lower amid month-end, quarter-end positioning

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Yields for government debt pulled back Monday, with some attributing buying in Treasurys to positioning ahead of the end of the month and completion of the second quarter. Some strategists also pointed to a pickup in global tensions after U.S. airstrikes overnight in Iraq and Syria.

Fixed-income investors are mostly awaiting a key, monthly labor-market report due on Friday, as investors focus on the health of the U.S. economy amid its recovery from COVID.

Investors also were parsing the latest developments related to a $1 trillion infrastructure bill.

How Treasurys are performing?
  • The 10-year Treasury note

    yielded 1.478%, down 5.7 basis points from 1.535% at 3 p.m. Eastern Time on Friday. Yields for debt fall as prices rise.

  • The 30-year Treasury bond

    was yielding 2.098%, down 7.1 basis points, compared with 2.169% at the end of last week.

  • The yield on the 2-year Treasury note

    was at 0.254%, versus 0.270% on Friday.

The 10-year and 30-year notes registered their biggest daily yield slide since June 18, while the 2-year saw its sharpest rate drop since June 22, according to Dow Jones Market Data.

Fixed-income drivers

Yields retreated on Monday as investors got set to close out June and the second quarter, ahead of a key report Friday on the jobs market.

Early in the action, investors were focused on a U.S. airstrike conducted Sunday against “facilities used by Iran-backed militia groups” near the border between Iraq and Syria, which appeared to stoke buying interest in Treasurys.

Buying pick up steam into the session.

Debt investors also were watching a bipartisan infrastructure bill, that could deliver a fresh jolt to business activity in the U.S., while improving roads, bridges and tunnels. It was seen making further progress toward being completed after President Joe Biden over the weekend walked back comments that tied the $1 billion infrastructure bill to an antipoverty package.

Additional spending could weigh on government debt because such efforts are usually funded with Treasurys.

For the most part, investors have been fixated on the timing of tapering of the Fed’s monthly purchases of $120 billion in Treasurys and mortage-backed securities. Comments from a number of central bank officials are increasingly pointing the commencement of tapering at the start of 2022 and the first rate increases, from the current range of 0% and 0.25%, to begin at the end of next year.

Eric Rosengren, the president of the Boston Fed, expressed concern over the housing market in an interview with the Financial Times, and it comes as data shows house prices soaring. The median price for an existing home sale skyrocketed 24% in May. Other house price measures also are surging.

Rosengren also noted that ending mortgage buying sooner may be prompted by financial stability concerns that come from boom-and-bust real-estate cycles.

“It’s very important for us to get back to our 2 percent inflation target but the goal is for that to be sustainable. And for that to be sustainable, we can’t have a boom and bust cycle in something like real estate,” the Boston Fed President said in an interview with the Financial Times.

What strategists are saying

“The US Treasury yield curve flattened sharply in an excessive initial reaction to the Federal Open Market Committee’s more-hawkish-than-expected federal funds rate median projections. Rates have settled into ranges since, but we expect yields will climb further during the second half of the year,” wrote John Canavan, lead analyst at Oxford Economics in a Monday research note.

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