On Thursday, the 10-year Treasury yield fell to 1.25 percent, its lowest level since February, continuing a remarkable reversal in the bond market amid mounting concerns about the pace of global economic recovery. After reaching 1.25 percent earlier in the morning, the yield on the benchmark 10-year Treasury note declined 6 basis points to 1.261 percent at 7:20 a.m. ET. The 30-year Treasury bond yield has dropped 7.6 basis points to 1.868 percent. Yields move in the opposite direction of prices, with 1 basis point equaling 0.01 percentage point. “This drop in bond yields may indicate that the inflation spike is only temporary, and/or that the Delta version would restrain growth, albeit at 1.25 percent this morning, that seems unlikely. Alternatively, the Fed’s balance sheet has increased by almost $4 trillion in just over a year, to over $8 trillion “In a note released Thursday, Ed Hyman, the founder and chairman of Evercore ISI as well as the head of economic research, stated. The development of the more transmissible strain of Covid-19 has exacerbated fears of a global economic slowdown, prompting investors to seek refuge in U.S. Treasury bonds. Japan has declared a state of emergency in Tokyo, which may result in spectators being barred from attending the forthcoming Olympic Games. Since last Friday, the 10-year yield has decreased roughly 18 basis points, while the 30-year yield has declined about the same amount. The recent drop in yields is a strong reversal from a dramatic climb that began in late 2020. The benchmark 10-year yield surged to 1.7 percent in March after starting the year around 1%, before retrenching near 1.6 percent for much of April. The change has perplexed investors, and some feel the decrease in yields is mostly due to technical issues. In a Thursday note headed “Misleading bond market signals,” Christopher Harvey, head of equity strategy at Wells Fargo, wrote, “Inflation expectations have been consistent, suggesting economic reasons are not at the heart of the decline.” “Technical difficulties relating to liquidity, positioning, and forced purchasing are ‘driving the bus,’ according to rate players and our Macro team.” Long-term interest rates are falling even as the Federal Reserve indicates it is leaning toward tightening its monetary policy. Investors anticipate the central bank’s first step to be a reduction in asset purchases while maintaining its key rate at historic lows. The Treasury yield curve has flattened because short-term rates have not declined at the same rate as long-term rates. At 8:30 a.m. ET on Thursday, the US Labor Department will disclose the number of weekly unemployment claims for the week ending July 3. According to Dow Jones, economists estimate 350,000 first-time jobless benefit applicants for the week ending July 3. This comes after the Federal Reserve issued minutes from its most recent meeting on June 15-16 on Wednesday. Some members stated that the economy was recovering faster than projected and that inflation was rising faster than predicted, both of which supported the Fed’s decision to ease policy. The general consensus, however, was that there should be no hurry and that markets should be well prepared for any shifts. On Thursday, auctions for $40 billion in 4-week notes and $40 billion in 8-week bills will be held. — Jeff Cox of CNBC contributed to this market update./n
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