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Bond Report: Treasurys remain mixed, with 10-year rate little changed, as investors await Fed speakers

Treasury yields were mixed Wednesday morning, with the 10-year note little changed from its three-week high, while the 30-year bond yield ticked higher, as investors awaited remarks by Federal Reserve officials.

What are yields doing?

The yield on the 10-year Treasury note

was at 1.636%, compared with 1.632% at 3 p.m. Eastern on Tuesday.

The 2-year note

yield was 0.52%, unchanged from Tuesday afternoon.

The 30-year Treasury bond yield

was at 2.04% versus 2.017% late Tuesday.

The 10-year note yield reached its highest since Oct. 25 on Tuesday, while the 30-year yield was the highest since Oct. 26, based on 3 p.m. levels, according to Dow Jones Market Data.

What’s driving the market?

Data released on Wednesday showed that Octobernew home construction ebbed, while permitting activity continued at a steady clip, pointing to the challenges builders are facing in starting and completing projects.

U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.52 million last month, representing a 0.7% decrease from the previous month, the U.S. Census Bureau reported. Compared with October 2020, housing starts were up 0.4%.

Permitting for new homes occurred at a seasonally-adjusted annual rate of 1.65 million, up 4% from September and 3.4% from a year ago. Economists polled by MarketWatch had expected housing starts to occur at a median pace of 1.63 million and building permits to come in at a median pace of 1.58 million.

Yields were mixed early Wednesday as investors waited to hear from a number of Fed policy makers. San Francisco Fed President Mary Daly is set to participate in a discussion with Rostin Behnam, acting chairman of the Commodity Futures Trading Commission at 12:40 p.m.

Fed Gov. Christopher Waller is scheduled to talk about stablecoins at a Cleveland Fed conference on financial stability at 12:45 pm Eastern, while Atlanta Fed President Raphael Bostic is slated to deliver remarks at a Fed event on housing for vulnerable renters at 4 p.m. Chicago Fed President Charles Evans is participating in a Q&A session at the Mid-Size Bank Coalition of America event at 4:05 p.m. Eastern.

On Tuesday, yields rose after a stronger-than-expected rise in October retail sales and remarks by St. Louis Federal Reserve Bank President James Bullard, who said the central bank should move to accelerate the tapering of monthly asset purchases to $30 billion a month. That would allow the process to be completed by the end of the first quarter of next year.

Since September, a sharp rise in Treasury yields at the short end of the yield curve has been driven by growing expectations the Federal Reserve will move more quickly than previously anticipated to tighten policy in an effort to rein in inflation. Longer-dated yields have been volatile but in a range in the past month. Some investors see the resulting flattening of the curve as warning that the Fed may move so aggressively that it causes an economic downturn, while others contend that market participants are underestimating how long-lasting inflation could prove to be.

See: This Treasury dealer says the market has it entirely wrong on the Fed and interest rates.

What are analysts saying?

“Firm U.S. retail sales data yesterday suggests again that consumers are not necessarily balking at higher prices and that could be another sign that there’s a bit more urgency to stamp down on inflation. This being said, our own view is that the Fed will continue to show patience,” said Steve Barrow, head of G-10 strategy at Standard Bank, in a note.

“We doubt, for instance, that it will increase the pace of tapering at the December meeting and remain skeptical that it will start to lift policy rates before it has finished reducing its bond purchases (which is currently scheduled for next June),” he said. “Hence, in the end, we fear that the Fed will fall behind the curve.”

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