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Bond Report: Treasury yields bounce after breaking string of 3 consecutive weekly rises


Treasury yields moved higher early Monday, after retreating last week as expectations for Federal Reserve rate increases moderated in response to growing recession fears.

What yields are doing

The yield on the 10-year Treasury note

was at 3.173%, up from 3.125% at 3 p.m. Eastern on Friday.

The yield on the 2-year Treasury note

was at 3.089% versus 3.057% Friday afternoon. The 2-year yield dropped 10.7 basis points, its largest weekly drop based on 3 p.m. levels since the week ended March 20,2020, according to Dow Jones Market Data.

The 30-year Treasury bond yield

was 3.311% versus 3.258% late Friday.

What’s driving the market

The Federal Reserve has moved aggressively raise the fed-funds rate, delivering a hike of 75 basis points, or three-quarter of a percentage point, in June, its largest since 1994, after a half-point rise in May and a quarter-point rise in March. The Fed also started shrinking its balance sheet this month.

Read: Recession is challenging inflation as top fear among stock and bond investors

Federal Reserve Chair Jerome Powell last week told lawmakers that a recession was a possibility as the central bank moves to get inflation under control.

The Federal Reserve’s preferred price gauge, the core personal-consumption expenditures, or PCE, inflation reading for May is due on Thursday morning.

On Monday, May data on durable goods orders is due at 8:30 a.m., while a pending home-sales index is set for release at 10 a.m.

What analysts say

The process “of translating higher policy rates into a cogent forecast for growth has become particularly challenging given the realities of a Fed poised to push target funds to levels not seen since at least 2008,” wrote strategists Ian Lyngen and Benjamin Jeffery at BMO Capital Markets.

“This issue is less of one related to the outright level of rates as much as it is of the parallels (or lack thereof) between the state of the U.S. economy now versus 14 years ago,” they wrote. “Inflation is high, unemployment is low, however real GDP expectations both domestically and abroad are quickly coming under pressure with recessionary fears far more topical than one might have assumed as recently as the June 15 FOMC meeting during which 75 bp was deemed the most prudent path for policy rates in light of the balance of risks. Investor sentiment has shifted quickly in terms of the outlook and we’re increasingly of the mind that the peaks for U.S. rates have been established.”

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