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29 Sep, Thursday
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Bull Trader USA

Bond Report: Treasury yields remain mostly lower even after U.S. consumer confidence report

Treasury yields remained mixed, but mostly lower, on Wednesday after data showed December consumer confidence improving while markets weighed the economic impact of the omicron variant of the coronavirus.

Bond markets will close an hour early Thursday and will remain closed in observance of Christmas on Friday.

What are yieldings doing?

The 10-year Treasury note TMUBMUSD10Y, 1.460% yields 1.464%, down from 1.487% at 3 p.m. ET on Tuesday.
The 30-year Treasury bond rate TMUBMUSD30Y, 1.855% was at 1.86%, compared with 1.896% on Tuesday afternoon.
The 2-year Treasury note yield TMUBMUSD02Y, 0.674% was at 0.679%, versus 0.673% a day ago.

What’s driving the market?

Investors were buying 7- to 30-year Treasurys on Wednesday, pressuring those yields lower, even after data showed U.S. consumer confidence rose to 115.8 in December from a revised 111.9 in the prior month and concerns about inflation fell from a 13-year high last month.

Meanwhile, existing home sales rose for a third straight month in November and updated data released Wednesday showed that the U.S. economy expanded at an annual 2.3% pace in the third quarter, up from the prior estimate of 2.1%.

Uncertainty about the economic impact of the omicron variant continued to linger despite the Biden administration’s plans to fight the spread of the virus and the Food and Drug Administration’s decision to authorize a Covid-19 antiviral pill from Pfizer Inc. PFE, +1.17%

On one hand, preliminary reports that COVID-19 vaccines could still prove effective against the omicron variant have helped to stem the risk-off mood that impacted trading at the start of the week. Scientists in South Africa have also noted a significant drop in new COVID-19 cases, which could signal the omicron wave has passed its peak.

On the other hand, the holiday period remains overshadowed by the new variant that is causing case spikes in the U.S. and Europe, and which could result in new business and consumer restrictions.

Read: ‘Considerable’ risk that U.S. and much of Europe will need COVID lockdowns this winter, Credit Suisse says

Wednesday’s $17 billion auction in 5-year U.S. Treasury inflation-protected securities, or TIPS, was “a bit soft” and produced average statistics, according to BMO Capital Markets strategist Ben Jeffery.

Separately, Federal Reserve officials are planning to end their bond purchases by March, much faster than previously expected. At their December meeting, policy makers also penciled in three interest rate increases for next year in the so-called dot plot, while keeping their long-run projection for the fed-funds rate, which currently stand at a range between 0% and 0.25%, at 2.5% and raising their inflation forecasts through 2023.

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What strategists are saying

“After a 15-bp zip from low to high rates this week, the 10-yr UST returns to its technical comfort zone, and 5 [year Treasurys] are aligned again with multiple rate hikes the next two years,” wrote Jim Vogel, executive vice president at FHN Financial, in a Wednesday note. As for the ability to sustain the 10-year rate above 1.51%, “there have been only a handful of trades at 1.53% or higher since the Omicron variant hit world news on November 26,” Vogel wrote.

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