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

Treasury yields turned mixed early 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,
3.118%

was at 3.117% after trading above 3.20% at its session high, according to FactSet. The yield was at 3.124% at 3 p.m. Eastern on Friday, its highest since Nov. 3, 2018. Yields and debt prices move opposite each other.

The 2-year Treasury yield
TMUBMUSD02Y,
2.638%

was 2.631%, down from 2.696% Friday afternoon.

The 30-year Treasury bond yield
TMUBMUSD30Y,
3.239%

rose to 3.250%, up from 3.22% late Friday.

What’s driving the market?

A Treasury selloff has driven up yields sharply in 2022 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 opened lower on Monday following a volatile period last week when Dow industrials
DJIA,
-1.27%
,
the S&P 500
SPX,
-1.61%

and Nasdaq Composite
COMP,
-1.84%

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.

What analysts are saying?

“Bond yields have continued to climb and that’s despite the fact that riskier assets, such as equities, have been on the slide. Some time ago we might have expected weakness in risk assets to lower government bond yields but surging inflation has clearly destroyed this relationship, at least for now,” said Steve Barrow, head of G-10 strategy at Standard Bank, in a note.

“The bottom line, in our view, is that bond prices and equity values spent many years rising in tandem and now they are falling together and look set to do so for some time,” he wrote.

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