10-year Treasury yield falls as low as 1.25% amid concerns about economic growth, Covid variant

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CNBC 08 July, 2021 - 03:05pm 10 views

What are Treasury yields?

Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations. ... The higher the yields on long-term U.S. Treasuries, the more confidence investors have in the economic outlook. But high long-term yields can also be a signal of rising inflation in the future. InvestopediaTreasury Yield Definition

Why are yields falling? More buying than selling!

Yahoo Finance 09 July, 2021 - 02:03am

LONDON (Reuters) - Investors confounded by the recent rally in U.S. Treasuries despite inflation running hot in a roaring economy are pointing to the simplest explanation for a move higher in prices: more buying than selling.

U.S. benchmark 10-year Treasury yields hit 1.25% - their lowest levels since February - on Thursday, the latest leg lower in a move that has left many an investor scratching their heads.

Bonds are typically expected to be sold in a reflationary environment, normally forcing yields - which move inversely to prices - higher. But the behaviour of bond markets in recent days is at odds with other financial markets: only on Wednesday, U.S. stocks as measured by the S&P 500 index hit record highs.

Some point to an ongoing rethink of the reflation narrative and a sense that economic growth may have peaked. Others say the explanation is merely technical.

The following graphic shows, on a 3-month moving average basis, Federal Reserve purchases of Treasuries against net issuance of Treasury securities. For an interactive version, click here https://tmsnrt.rs/3dYsAid.

Graphic: More buyers than sellers? - https://graphics.reuters.com/US-TREASURIES/FED/nmopaxoljva/chart.png

Since April this year, the gap between Fed purchases and net issuance has significantly narrowed, with issuance falling below purchases at one point in May.

"Essentially the Fed has been taking down all of the net supply of Treasuries, so I think this has been a bit of a supply ... a short squeeze, if you will, on the Treasury market," said Jeffrey Schulze, investment strategist at ClearBridge Investments.

May's dip in the 3-month moving average of net Treasury issuance was lower than levels in March 2020, although the pace seems to be picking up again.

"This is an extremely rare event in a QE world and also remarkable given it's coincided with the biggest fiscal giveaway in history," said Deutsche Bank's Jim Reid and Henry Allen in a research note.

Part of the reason for the drop-off in Treasury issuance is explained by the U.S. Treasury's decision last year to front-load borrowing with a large issuance of 7-30 year bonds.

HSBC's rates strategists in May said they forecasted 1% yields for the 10-year U.S. Treasury for end-2021 and end-2022, with a "possible prompt" coming from the narrative "shifting away from larger deficits and increased supply".

(Reporting by Ritvik Carvalho; Editing by Sonya Hepinstall)

Traders are no longer betting on steep inflation in the next five years as the Federal Reserve indicates it would like to start tightening policy 'sooner rather than later'

(Bloomberg) -- Long-term Treasury yields are spiraling lower this week alongside a broad slide in bond-market inflation expectations.The 30-year breakeven rate, a fixed-income proxy for the annual rate of inflation that’s expected over the next three decades, is about 2.18%, its lowest since March after being as high as 2.41% in May, with investors far less inclined to hold reflation wagers across asset classes. Indeed, breakevens in all maturities are down from last week.Investors across asset

Stock investors are watching the dramatic moves in the Treasury market for clues on the fate of one of this year’s most successful plays - the so-called reflation trade that helped power shares of economically sensitive companies higher after nearly a decade of underperformance. Investors piled in to shares of energy producers, banks and other companies expected to benefit from a powerful economic rebound earlier this year while betting that Treasury yields, which move inversely to prices, would rise.

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A breakneck rally in U.S. government bonds continued on Thursday, with 10-year Treasury yields falling to their lowest levels since early-2021 as investors sensed cracks in the economic recovery and cooling risks of high inflation. The S&P 500 is currently indicated to open down about 1.25%, and in a sign of just how uniform the decline has been, both the Dow and Nasdaq futures are also in the red by about the exact same amount.

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Investors at some of the largest U.S. asset managers are holding fast to the view that bond yields will move higher in the second half of this year, despite the recent slide in Treasury yields, which they see as a temporary move. An unwind of short bets against Treasury debt as well as growing concerns about the recovery of the U.S labor market and the spread of the Delta variant of the coronavirus has pushed down longer-dated U.S. government bond yields. But big U.S. bond managers including BlackRock, PIMCO, DoubleLine and TCW still expect the reopening economy to drive growth and inflation, even if at a slower pace in the second half of this year, and send yields higher again.

The 10-year briefly dipped below 1.30%, a sign of either slowing growth or a precursor to a sudden rise. What they would mean for the stock market.

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U.S. Treasury yields fell Tuesday, with the 10-year and 30-year rates at their lowest levels since late June, at the start of a holiday-abbreviated week for U.S. financial markets, after the observance of Independence Day on Monday given the holiday fell on a Sunday this year.

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Wall Street's main indexes fell on Thursday as the spread of the COVID-19 Delta variant cast doubts over an economic recovery, while a rout in Chinese tech stocks appeared to have spilled across markets. Equities fell and bond prices rallied on worries about Beijing's crackdown on foreign-listed Chinese firms and a sustained global economic recovery. Stocks that led much of Wall Street's rally this year and those that stand to benefit the most from an economic rebound were under pressure, with cyclical players including financials and materials leading declines among the 11 major S&P 500 sectors.

Futures dived as Treasury yields keep tumbling. New meme stock Newegg retreated after rocketing. Tesla China sales were strong.

The European Central Bank set a new inflation target on Thursday after an 18-month strategy review, hoping to bolster its credibility after undershooting its current objective for nearly a decade. It said it would also further incorporate climate change considerations into its monetary policy, the latest in a series of steps by the world's top central banks to acknowledge their policy must take account of climate change.

BRUSSELS (Reuters) -The European Commission fined German carmakers Volkswagen and BMW a total of 875 million euros ($1 billion) on Thursday for colluding to curb the use of emissions cleaning technology they had developed. The case, separate to the so-called 'Dieselgate' scandal over software designed to cheat on vehicle emissions tests, sets a precedent by extending the application of European competition law to technical-level talks between industry players. "This is a first," European Union antitrust chief Margrethe Vestager told a news conference in Brussels.

As of 11:15 a.m. EDT, the Nasdaq was down 1.3%, giving up its gains for the month. Biogen (NASDAQ: BIIB) has been in the spotlight recently thanks to a promising drug candidate for treating a terrible disease, while Golden Nugget Online Gaming (NASDAQ: GNOG) has largely remained under the radar in the gambling industry.

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‘The shift in the market’s outlook suggests that rates have little reason to move sharply higher anytime soon.’

USD/JPY Fundamental Daily Forecast - Falling Treasury Yields Driving Investors into Safe-Haven Japanese Yen

FX Empire 08 July, 2021 - 08:27pm

The risk off theme was fueled by weakness in mega cap U.S. technology stocks and renewed demand for the safe-haven appeal of government debt and safe-haven currencies. A broader-based sell-off in Asian stocks also contributed to the move.

At 20:02 GMT, the USD/JPY is trading 109.782, down 0.842 or -0.76%.

Essentially, a plunge in demand for risky assets drove investors into Treasury bonds. This pushed down yields, while tightening the spread between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a less-attractive asset.

Traders moved into the safe-haven Japanese Yen after the major U.S. stock indexes fell on Thursday on concern about the global economic comeback from COVID-19. The losses came as Japan declared a state of emergency in Tokyo for the upcoming Olympics and as countries deal with a rebound in cases because of COVID variants.

Meanwhile, the Labor Department’s latest jobless claims data came in unexpectedly higher at 373,000, signaling a possible slowdown in the labor picture amid the COVID recovery. Economists expected to see 350,000 first-time applicants for unemployment benefits for the week ended July 3, according to Dow Jones.

Olympic organizers are set to ban all spectators from the Games, the Asahi daily said on Tuesday, as Japan declared a coronavirus state of emergency for Tokyo that will run through its hosting of the event to curb a new wave of infections.

Furuse recently projected that new daily cases in Tokyo could increase to 1,000 in July and 2,000 in August, raising the risk of hospitals in the capital region running out of beds.

“Taking into consideration the effect of coronavirus variants and not to let the infections spread again to the rest of the nation, we need to strengthen our countermeasures,” Prime Minister Yoshihide Suga said.

“Given the situation, we will issue a state of emergency for Tokyo.”

Investors rotated into the safety of Treasuries further on Thursday, pushing the yield on the 10-year Treasury to 1.25% to the lowest since late February.

Despite the recovering economy and fast inflation, the 10-year Treasury yield continues to decline. It was at 1.58% to start July and hit a 2021 high of 1.78% in March. Traders remain confused about the exact reasons for the rollover in yields, with many citing concern that the best of the economic recovery may be behind us.

As long as Treasury yields continue to weaken, the Dollar/Yen is expected to feel downside pressure.

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