Treasury yields continue descent ahead of Fed minutes

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NEW YORK — US Treasury yields

continued their recent falls on Wednesday, with 10-year

yields on track for a seventh straight session of declines on

concerns the economic recovery may have peaked as investors

awaited clues on the Federal Reserve’s policy path.

The daily streak of declines for the 10-year note marks

the longest since a nine-session drop that ended on March 3,

2020, as the COVID-19 pandemic in the US was gaining speed.

Recent data on the labor market and services sector has

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given investors pause that the economy may not be

strengthening as anticipated and some underlying weakness may

be emerging.

On Wednesday, the Labor Department said job openings

moved higher in May while hiring dipped, indicting the

economy continues to struggle with labor shortages.

“Expectations for growth, for employment and for

inflation were all really, really optimistic and now, for

whatever reason, there seems to be this reckoning that

expectations were a little bit too high, especially on the

labor market front,” said Tom Simons, money market economist

at Jefferies in New York.

“There’s this expectation that maybe we’ve already seen

the best part of the recovery and that the rest of this is

going to be a slow grind as businesses try to figure out how

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to do more with less in terms of people, how to become more

productive.”

Analysts also pointed to volatility in the oil market,

where crude had run up in price until faltering on Tuesday

after OPEC producers canceled a meeting and worries about the

spread of the Delta variant of the coronavirus as

contributing to the risk-off environment, while technical

support levels on the 10-year being broken on Tuesday were

also cited for the decline.

The yield on 10-year Treasury notes was down

6.2 basis points to 1.308%.

Investors will eye the release of minutes from the Fed’s

June 15-16 meeting later in the session, when officials

opened debate on how to end crisis-era bond-buying and

signaled interest rate increases were closer on the horizon

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than previously thought.

A closely watched part of the US Treasury yield curve

measuring the gap between yields on two- and 10-year Treasury

notes, seen as an indicator of economic

expectations, was at 108.600 basis points after flattening to

as small as 107.3, the narrowest since Feb 12.

Market players said the 10-year yield’s breach below

1.40% had been crucial in attracting more bond buyers as that

was the level where many had hedged their “reflation” bets.

The yield on the 30-year Treasury bond was

down 7.5 basis points to 1.928% after falling to a low of

1.918%, its lowest since Feb. 11.

July 7 Wednesday 10:53AM New York / 1453 GMT

Price

US T BONDS SEP1 163-19/32 1-16/32

10YR TNotes SEP1 133-152/256 0-96/256

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Price Current Net

Yield% Change

(bps)

Three-month bills 0.0525 0.0532 0.000

Six-month bills 0.0525 0.0532 0.000

Two-year note 99-208/256 0.22 -0.002

Three-year note 99-140/256 0.4053 -0.006

Five-year note 100-110/256 0.7868 -0.022

Seven-year note 101-24/256 1.0868 -0.045

10-year note 102-236/256 1.3079 -0.062

30-year bond 110-28/256 1.928 -0.075

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

US 2-year dollar swap 7.75 -0.25

spread

US 3-year dollar swap 11.50 -0.25

spread

US 5-year dollar swap 7.00 -0.25

spread

US 10-year dollar swap -2.75 -0.25

spread

US 30-year dollar swap -32.00 -0.50

spread

(Additional reporting by Karen Brettell; Editing by Toby

Chopra)