Longer-dated U.S. Treasury yields fell to five-month lows on Thursday as stock markets slumped, prompting suspicions that the government debt rally is reflecting greater concern about the economic recovery from COVID, which saw the S&P 500 and Nasdaq Composite end the day at all-time highs. Minutes from the Federal Reserve’s June policy meeting were released on Wednesday, confirming that policymakers are debating the time and conditions for considering a reduction in monthly bond purchases, which have helped to keep the market afloat during the pandemic.
How are Treasurys faring?
The yield on the 10-year Treasury note TMUBMUSD10Y, 1.288 percent, is now 1.275 percent, down from 1.321 percent at 3 p.m. Eastern Time on Wednesday.
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The 2-year Treasury note TMUBMUSD02Y, with a yield of 0.228 percent, remained unchanged at 0.216 percent.
Drivers with a fixed income The reflation trade is gone, but the reflation trade is alive and well. The market was swept by a wave of “risk off” sentiment on Thursday, with bonds leading the push. Government debt yields are sinking deeper into the abyss, with some strategists pointing to 1.20 percent as a possible signal from the benchmark 10-year Treasury for the broader market that fixed-income investors see problems brewing in the economy or the market, or both, a day after a pair of record closes for U.S. stock market indexes. Since the end of the Federal Reserve’s two-day meeting on June 16, the present decrease in yields has been in progress. Minutes from that mid-June meeting were released on Wednesday, indicating that the US central bank is considering scaling back some of its accommodative measures, including its $120 billion per month asset-purchase program, which has helped to stabilize financial markets since the pandemic disruptions last year. The minutes suggested that the Fed may need to trim its asset purchases sooner rather than later, allowing for interest rate hikes, but the account of the central bank’s discussions did not show that policymakers were in agreement. Officials still expect recent inflation spikes to be short-lived, owing to bottlenecks and a boost in post-pandemic demand, according to the minutes. At 8:30 a.m. Eastern Time, investors will examine weekly data on U.S. jobless benefit claims, with economists predicting claims for unemployment insurance to have decreased to 350,000, adding to indications of a labor market rebound. “The unraveling of the inflation/reflation trade has escalated during the past week,” warn strategists. Bond rates in the United States have continued to fall and have now broken through a key technical threshold. In a research note issued Thursday, Société Générale’s Albert Edwards said, “This might see the rally accelerate significantly, and with it, the further unraveling of cyclicals and commodities.”/n
