Treasury yields post biggest gains in nearly a week as investors reassess economic growth outlook

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Yields on two-, 10- and 30-year Treasuries posted their biggest increases in nearly a week on Wednesday as investors reconsidered the outlook for global economic growth and U.S. stocks tried to hold on to highs. modest gains.

What do yields do?
  • The yield of the 10-year Treasury note TMUBMUSD10Y,
    2.833%
    rose 4.4 basis points to 2.817% from 2.773% at 3 p.m. Eastern on Tuesday.

  • The yield of the 2-year Treasury bills TMUBMUSD02Y,
    2.550%
    rose 3.3 basis points to 2.577% from 2.544% on Tuesday afternoon, based on new issuance levels.

  • The yield of the 30-year Treasury note TMUBMUSD30Y,
    2.923%
    rose 3.8 basis points to 2.907% from 2.869% on Tuesday evening.

What is driving the market?

Yields have jumped this year as investors have expressed increasingly aggressive expectations that the Federal Reserve will rapidly raise interest rates and shrink the size of its balance sheet as it faces inflation at its worst. high level for four decades.

Until Wednesday, Treasury prices had found support in part thanks to a flight to safety on volatile swings in global stock markets and worries about lockdowns in China to contain COVID. China’s zero-COVID policy has been seen as a renewed threat to supply chains, which could fuel inflationary pressures, while the country’s economy is also showing signs of a significant slowdown.

Developments around the Russian-Ukrainian war also remain a focus. State-controlled Russian giant Gazprom RU:GAZP
said it cut off natural gas supplies to Poland and Bulgaria for refusing to pay in Russian rubles, as demanded by President Vladimir Putin.

Lily: “Energy is increasingly militarized.” Analysts assess risks after Russia cuts off gas to two EU countries

The dollar, meanwhile, continues to appreciate, gaining ground against the euro EURUSD and the British pound GBPUSD.

Data released on Wednesday showed the U.S. trade deficit in goods soared nearly 18% in March to a record $125.3 billion, reflecting huge U.S. demand for imported goods and rising prices linked to high inflation. Meanwhile, pending home sales fell 1.2% in March.

The Treasury’s sale of $49 billion in BX:TMUBMUSD05Y 5-year notes on Wednesday produced “decent” results and “average” statistics, according to Jefferies economists Thomas Simons and Aneta Markowska.

What are the analysts saying?

While Treasuries and other safe-haven assets have room for periods of support, these episodes are likely to prove temporary, Steven Barrow, head of G-10 strategy at Standard Bank, said in a statement. note.

“In our view, the path of least resistance in this case is for yields to rise given factors such as soaring inflation and central bank tightening. What we can hope for right now is that bond prices are generally moving sideways, although likely with some day-to-day volatility as risk sentiment fluctuates,” he wrote.

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