What are yields doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.500%
was at 1.496%, up compared with 1.451% on Friday at 3 p.m. ET., representing the sharpest daily yield rise since Oct. 19, according to Dow Jones Market Data. Friday’s level marked the lowest yield since Sept. 23 and culminated the largest weekly decline since the week ended June 12, 2020, according to Dow Jones Market Data.

The 2-year Treasury note yields
TMUBMUSD02Y,
0.458%
0.447%, up from 0.399% on Friday, and marked the sharpest yield gain for the note since Oct. 21. Friday’s level was the lowest since Oct. 20 and culminated the rate’s sharpest weekly decline since March 27, 2020.

The 30-year Treasury bond rate
TMUBMUSD30Y,
1.889%
was at 1.887%, up slightly from1.885% Friday that marked the lowest yield since Sept. 22.

What’s driving the market?

A pair of Fed officials added to extant pressures on Treasury debt, nudging yields higher and prices lower, on Monday.

Fixed-income investors have harbored concerns that the Fed’s latest actions to engineer a soft landing for the U.S. economy amid rising inflation pressures could result in a policy error.

Fed Vice Chair Richard Clarida repeated his view that the criteria for a rate increase could be met before the end of 2022. Meanwhile, St. Louis Fed President James Bullard, appearing on Fox Business, said he expects the central bank to raise interest rates twice in 2022. Bullard will be a voting member of the policy-setting Federal Open Market Committee next year.

Last week, policy makers said that elevated inflation appears to be largely reflecting factors that are expected to be transitory, and Chairman Jerome Powell said the central bank could remain “patient” about when to raise interest rates as it kicked of its tapering initiative. He also said that it was possible that the job market could improve sufficiently to warrant rate liftoff by the second half of 2022, running against market expectations for multiple rate increases by that time.

Treasury yields were already on the rise as investors parsed actions that occurred at the end of last week.

One was the House passage of the $1 trillion public-works bill, which gave President Joe Biden a big win. Biden is expected to sign the bill, which includes $110 billion in funding for roads, bridges and major projects, but political obstacles loom ahead for the White House as attention shifts to an even bigger spending bill and next year’s midterm elections.

The other development was Pfizer’s release of interim data on a late-stage trial of its oral antiviral, which raised hopes for a new coronavirus treatment that’s easy to administer. Friday’s news from Pfizer gave investors reason to hope that the entire global economy can reopen, if such an easy-to-administer solution to COVID-19 is ultimately approved.

Debate about the pace of interest-rate increases has created some turbulence in Treasury trading, after the Fed decided to embark on a reduction of its COVID-era, monthly asset purchases.

Data on employment released Friday showed that the U.S. economy created 531,000 jobs in October, compared with economists’ average forecast for a rise of 450,000, according to a survey by The Wall Street Journal. The unemployment rate fell to 4.6% last month from 4.8%. Also, September job gains were revised to 312,000 from a previous estimate of 194,000, while August jobs were raised to 483,000 from 366,000.

Investors also are closely watching for signs about the reappointment of Powell, whose term as Fed boss expires in 2022, following reports that President Joe Biden met with the chairman and Fed Gov. Lael Brainard at the White House on Thursday.

Meanwhile, investors digested a $56 billion auction of three-year notes BX:TMUBMUSD03M, which was described to be on the “soft side.” The yield of 0.75% was above the “when issued” level, reflecting the highest yield expected when the auction began, of 0.74% and the bid to cover of 2.33 —which measures the amount of bids relative to the amount of supply available in Treasury auctions—was below the one-year average of 2.44. marking the second lowest of the year, an analyst said.

Looking ahead, investors will watch Wednesday’s consumer-price index, or CPI, for further evidence of inflation.

What analysts are saying

“The front-end of the curve has been whipsawed by confusing signals from global central banks and a shuffle in rate hike bets. Despite the strong employment data last week, the front-end of the U.S. curve has been rallying. The recent rally and the early timing for the auction don’t leave much time or room for the traditional auction setup, which could lead to a little bit of sloppiness. The smaller size this month mitigates some of this risk, however, so a screws stop seems likely,” wrote economists Thomas Simons and Aneta Markowska of Jefferies, in a note.