Treasury yields were mixed Wednesday, with the 10-year little changed, as investors weigh the outlook for global economic growth as China wrestles with a rise in COVID-19 cases and while Russia is cutting off supplies of natural gas to Poland and Bulgaria.
What are yields doing?
The yield on the 10-year Treasury note
was at 2.771%, down slightly from 2.773% at 3 p.m. Eastern on Tuesday.
The 2-year Treasury note yield
rose to 2.569% from 2.544 Tuesday afternoon.
The yield on the 30-year Treasury bond
was at 2.863% versus 2.869% late Tuesday.
What’s driving the market?
Treasury prices have bounced this week, pulling yields for the 10- and 2-year notes back from levels last seen more than three years ago. Yields earlier surged this year as investors penciled in increasingly aggressive expectations for the Federal Reserve to rapidly raise interest rates and scale back the size of its balance sheet as it deals with inflation running at its hottest in four decades.
This week has seen Treasury prices find support in part from a flight to safety on volatile swings in global equity markets and worries about lockdowns in China to contain COVID. China’s zero-COVID policy is seen posing a renewed threat to supply chains, which could stoke inflation pressures, while the country’s economy is also showing signs of a significant slowdown.
Developments around the Russia-Ukraine war also remain in focus. State-controlled Russian giant Gazprom
said Tuesday that it had cut natural gas deliveries to Poland and Bulgaria as they refused to pay in Russian rubles, as demanded by President Vladimir Putin.
The U.S. Treasury auction calendar includes a sale of $49 billion of 5-year notes
March U.S. international trade data is due at 8:30 a.m. ET, with a pending home-sales index for March set for release at 10 a.m.
What are analysts saying?
Risky assets appear likely to continue to slide with no prospect for central banks to ride to the rescue, leaving room for Treasurys and other haven assets to enjoy periods of support, said Steven Barrow, head of G-10 strategy at Standard Bank, in a note. But those episodes are likely to prove temporary, he said.
“In our view, the path of least resistance in this case is for yields to move higher given factors such as surging inflation and central bank tightening. Hence, the best that government bond investors can hope for right now is that bond prices generally move sideways, albeit presumably with quite a bit of day-to-day volatility as risk sentiment ebbs and flows,” he wrote.