Bond Report: Treasury yields extend slide as investors gear up for Powell testimony and big week for earnings, data

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Yields for long-dated U.S. government debt on Monday were edging lower as investors awaited a batch of important economic reports, notably data on inflation, due later in the week, as well as Federal Reserve Chairman Jerome Powell’s testimony on Capitol Hill on Wednesday.

In the near term, investors will key in on a 10-year Treasury auction after the benchmark bond skidded below 1.3% last week, hitting a low not seen since February.

How Treasurys are performing
  • The 10-year Treasury note yield
    TMUBMUSD10Y,
    1.339%

    was at 1.342%, versus 1.354% at 3 p.m. Eastern Time Friday.

  • The 30-year Treasury bond
    TMUBMUSD30Y,
    1.964%

    was yielding 1.973%, compared with 1.981%.

  • The 2-year Treasury note
    TMUBMUSD02Y,
    0.216%

    was at 0.213%, down from 0.215% at the end of last week.

On Friday, the 2-year, 10-year and 30-year Treasurys all notched back-to-back weekly declines.

Fixed-income drivers

Yields continue to hold lower even after equity markets on Friday booked a trifecta of record highs.

The spread of COVID-19’s Delta variant has been partly blamed for the buying in government debt which has pushed prices higher and yields lower. However, a number of fixed-income strategists continue to hold the view that the benchmark bond yield will drift back up toward 2% by the end of 2021.

Markets are awaiting additional insights about the economy to better assess the outlook for financial markets and businesses.

Powell is scheduled to deliver the Fed’s semiannual report to Congress on the state of the U.S. economy starting on Wednesday. Central bank officials have said that they believe pricing pressures will be short-lived. A Fed report out last week indicated that supply-chain bottlenecks are creating inflation that could be “more lasting but temporary.” How investors interpret the term “temporary” might raise some anxieties.

Before Powell’s testimony the consumer-price index on Tuesday is expected to underscore a run-up in inflation as the economy emerges from the deadliest pandemic in generations.

Earnings season unofficially kicks off on Tuesday with the likes of JPMorgan Chase & Co.
JPM,
+3.20%

and Goldman Sachs
GS,
+3.57%

reporting. Investors view those financial institutions as bellwethers for the health of the economy.

Looking ahead, an auction of $38 billion in 10-year Treasury notes Monday afternoon will likely draw attention, especially after appetite for the benchmark recently drove yields down to around 1.25%.

Meanwhile, New York Federal Reserve President John Williams is set to speak at 9 a.m. Eastern Time, and Minnesota Fed President Neel Kashkari is scheduled to speak at 12 p.m.

There are no major data releases Monday.

What strategists and traders say

“The 10-yr auction is more about investor positioning than near-term policy issues. The $38 billion could clear anywhere between 1.28%-1.37% without clearing up any of the fundamental questions raised by the June-July rally that kept the yield curve remarkably flat,” wrote Jim Vogel, executive v.p. at FHN Financial, in a daily report.

“Instead, that range would just make it more difficult to cling to the ‘technical trading’ reason for the rally,” he wrote.

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