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May 29, 2022

News of the Trade

Latest trading, investing, and financial news

Treasury selloff abates after 10-year yield briefly spikes above 3.2%

Treasury yields turned lower Monday after the 10-year yield briefly broke above 3.20% and as investors await another round of inflation data this week.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.039%
    pulled back to 3.08% at 3 p.m. Eastern after trading above 3.20% at its session high, according to FactSet. The yield was at 3.124% on Friday afternoon, its highest since Nov. 3, 2018. Yields and debt prices move opposite each other.

  • The 2-year Treasury yield
    TMUBMUSD02Y,
    2.606%
    fell 7.8 basis points to 2.618%.

  • The 30-year Treasury bond yield
    TMUBMUSD30Y,
    3.157%
    fell 1.4 basis points to 3.206%.

What’s driving the market?

A Treasury selloff that has driven up yields sharply in 2022 took a breather on Monday.

Yields have been rising as investors react to inflation running at its hottest in more than four decades and as the Federal Reserve ramps up its efforts to cool price pressures. Last week, the Fed delivered an increase of 50 basis points, or half a percentage point, to the fed-funds rate. It’s the largest since 2000. The Fed also signaled more half-point hikes were on the table for coming meetings.

In an interview with Bloomberg, Atlanta Fed President Raphael Bostic was cool to the idea of the central bank hiking rates by three-quarters of a percentage point. Bostic said the plan to hike rates by 50 basis points over the next couple of meetings was adequate. Fed Chairman Jerome Powell last week said the central bank wasn’t actively considering a 75 basis point move.

Major U.S. stock indexes fell sharply on Monday following a volatile period last week. The Dow industrials
DJIA,
-1.99%,
the S&P 500
SPX,
-3.20%
and Nasdaq Composite
COMP,
-4.29%
all had their longest weekly losing streak in years. A sharp rise in yields is a negative for stocks, particularly tech and other growth shares whose valuations are based on profit and cash flow far into the future. Rising yields on risk-free Treasurys undercut the present value of those future flows.

Crude tracked the selloff in global assets on Monday, as Saudi Arabia slashed prices for Asian customers and elsewhere and China reported sharply weaker export data.

The focus this week is on inflation data and any signs of a slowing in price pressures, with the April consumer price index due Wednesday morning. It will also be a busy week for Fed officials, with several slated to speak on Tuesday.

What analysts are saying?

“With only two rate hikes executed and the balance sheet rundown yet to begin, we suspect that the higher volatility regime is here to stay. Until Wednesday morning when April’s CPI data is revealed and the 10-year refunding is taken down, it will be up to Tuesday’s heavy slate of Fed rhetoric to inform the staying power of the pullback from the fresh cycle highs,” wrote strategists Ian Lyngen and Benjamin Jeffery of BMO Capital Markets, in a Monday note.