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29 Sep, Thursday
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Bull Trader USA

Bond Report: 2-year Treasury note yields around 0.75% as Dow industrials extend rally

U.S. Treasury yields were mixed Tuesday, with the 2-year maturity at a new 52-week high. Investors remained hopeful that the omicron variant of COVID would have limited economic impact, with that belief helping to lift the Dow industrials while limiting appetite for Treasurys.

What are yields doing?

The 10-year Treasury note yields TMUBMUSD10Y, 1.485% 1.480%, virtually unchanged from Monday at 3 p.m. Eastern Time.
The 2-year Treasury note yield TMUBMUSD02Y, 0.761% was at 0.748%, down 1 basis point, based on the new issue.
The 30-year Treasury bond rate TMUBMUSD30Y, 1.903% was at 1.902%, up 1.7 basis points from Monday afternoon.

What’s driving the market?

Yields on the shorter end of the Treasury curve were mostly rising as investors shook off concerns about the economic impact of the omicron variant of the coronavirus and sending the Dow industrials higher DJIA, +0.26%.

While COVID spreads around the globe, particularly wreaking havoc on air travel due to rising cases among workers, investors believe the global economy can handle it. The Centers for Disease Control and Prevention has cut its recommended COVID-19 isolation time to five days, from 10, if affected individuals are symptom-free.

Debt investors parsed the S&P Case-Shiller U.S. house price index, which posted a 18.4% year-over-year gain in October, down from 19.1% the previous month. Monthly, the index increased 0.8% between September and October.

Fixed-income investors have been digesting a faster reduction in monthly bond purchases by the Federal Reserve to combat inflation and expectations that policy makers could lift interest rates, which currently stand at a range between 0% and 0.25%, at least three times in 2022.

Meanwhile, an auction of $59 billion in 5-year notes TMUBMUSD05Y, 1.248% tailed 0.4 basis point and stopped at 1.263%. A stop-through indicates by how much the highest yield the Treasurys sold in the auction is below the highest yield expected when the auction began—the “when issued” level and the “tail” is the gap between the highest yield the Treasury sold in the auction and the yield before the auction began. 

What strategists are saying

“Although [quantitative easing] does lower rates, it is better to think about mass-scale QE as accelerating borrowing by those with the best credit. Those who intrinsically pay more to borrow then find easier financial conditions when the economy recovers and the best credits are out of the way,” wrote Jim Vogel, analyst at FHN Financial Markets, in a Tuesday note.
“We had noted in our preview that we expected the auction to go well and stop short. Considering that the [when issue] essentially erased its concession heading into the auction, and it is a holiday week, it is fair to say that the auction went well even though it generated a small tail,” wrote Jefferies economists Thomas Simons and Aneta Markowska in a Tuesday research note.

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