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Bond Report: 10-year Treasury yield marks 2-month high, threatens 1.4% as investors return from holiday

Treasury yields rose broadly Tuesday, pushing the 10-year Treasury rate to a nearly two-month high as U.S. investors returned from the Labor Day holiday, which saw markets closed on Monday.

There were no major catalysts on the fixed-income docket, with a dearth of economic reports and economic speakers.

What did yields do?

The 10-year Treasury note yields
TMUBMUSD10Y,
1.373%

1.370%, up 4.8 basis points, marking the highest yield for the benchmark bond since July 13, according to Dow Jones Market data. Yields move opposite to prices.

The 30-year Treasury bond
TMUBMUSD30Y,
1.989%

was yielding 1.985%, compared with 1.942% at the end of last week.

The 2-year Treasury note rate
TMUBMUSD02Y,
0.216%

was at 0.22%, versus 0.206% last Friday.

What’s driving the market

The benchmark yield was buoyant on Tuesday, ascending to the loftiest level since around mid-July, even as stocks mostly retreated on Wall Street.

Yields and stock prices usually move in the same direction but the tug of fixed-income selling, weighed on Treasury prices, propelling rates up across the curve, as investors returned from a long holiday.

Some traders attributed the downbeat tone in government debt to unfinished selling from last Friday.

Investors last week, parsed the U.S. August nonfarm payrolls report, which showed that the number of new jobs created fell well short of economists’ forecast for a 720,000 increase.

However, some strategists viewed the data as insufficient to halt an eventual announcement of tapering by the Federal Reserve at some point in 2021. The Fed’s buying of $80 billion in Treasurys and $40 billion in mortgage-backed securities helped to provide liquidity to COVID-stricken markets back in the spring of 2020 and have anchored yields lower. But critics believe that the continuing economic recovery no longer warrants such monetary programs.

Meanwhile, the market saw an auction of $58 billion in 3-year notes
TMUBMUSD03Y,
0.431%
,
which at least one economist referred to as “solid.”

What analysts are saying

“The negative tone set in the wake of Friday’s employment report was carried over into this week, although the bulk of the follow-through occurred during the overnight session,” wrote BMO Capital Markets strategists Ian Lyngen and Ben Jeffery, in a daily note.

The “10-year yields managed to edge to the highest level since mid-July but failed to challenge the 1.42% upper bound of the range. This isn’t to suggest in the run-up to the 10-year reopening that another leg higher in yields as a concession for supply is entirely off the table, although the probability of a meaningful technical breach of support has lessened as the bearish momentum appears to be waning,” the strategists wrote.

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