- 10-year US Treasury yields have trimmed past gains to trade slightly lower, but still above 1.60%.
- Strong US data and aggressive comments from the Fed helped boost yields early in the session.
10-year US Treasury yields they continue to consolidate slightly above the 1.60% level, where they are trading modestly lower by around 1bp on the session. Last week’s high of 1.60% offers support for now. The 30-year yield declined by a very modest margin similar to just under 2.0%. Short-term returns remain lateralized with 2-year returns just below 0.52%.
Yields have retreated from the previous session’s highs when the 2-year hit 0.54% and the 10-year yield hit the three-week highs just below 1.64%. A much stronger-than-expected US retail sales report for October, as well as aggressive comments from St. Louis Fed Chairman and 2022 FOMC voter James Bullard, had pushed yields higher to early in the session. For reference, general retail sales were up 1.7% month-on-month versus forecasts for a 1.2% increase, and Bullard suggested the Fed accelerates the pace of QE reduction to $ 30 billion a month to pave the way for a hike. rates in the first quarter of 2022.
Although the previous hike has mostly recovered, it would appear that risks are pointing to higher US yields at this point. Last week’s much higher-than-expected US inflation data has pressured the Fed to become more aggressive, while other US data has also been surprising to the upside. The November New York Fed manufacturing survey released on Monday was much stronger than expected and signaled a further acceleration in US growth this month. Analysts note that a key downside risk to bond yields if it ends up prompting broad demand for safe-haven assets could be a resurgence of Covid-19 infections in the US next winter.
Going forward, bond traders will be on the lookout for further statements from the Fed, with FOMC members Raphael Bostic and Thomas Barkin scheduled to speak at 5:00 PM GMT, followed by FOMC member Mary Daly at 8:30 PM GMT. . For the rest of the week, bond markets will remain focused on the Fed speech, US data and a $ 23 billion 20-year bond auction on Wednesday. Note that last week’s $ 25 billion 30-year bond auction was poor.
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