‘10-year yields confined to a tight trading range’
Treasury yields pared earlier declines and titled higher on Wednesday, following a bounce in oil and equity markets, though longer-dated yields were hanging near their lowest levels of the year.
Analysts noted that in the absence of important news or data releases, bond markets have been following assets perceived as risky, such as equities and oil. Oil and stocks have recently been closely linked and crude’s decline on Wednesday, after a three-day workers’ strike in Kuwait ended.
Oil prices, which were down sharply, bounced back to trade above $43 a barrel after government data showed a fall in weekly domestic crude production for a sixth straight week. Meanwhile U.S. equities followed crude futures higher, advancing for a third straight session.
“We have entered the blackout period, as the Federal Reserve officials are not going to be commenting until the policy meeting next week. Lack of genuine drivers leaves bond markets at the mercy of risky asset markets,” said David Schnautz, fixed income strategist at Commerzbank.
The yield on the benchmark U.S. 10-year note TMUBMUSD10Y, +1.62% was up by less than a basis point to 1.807% from 1.794% on Tuesday. One basis point is equal to one-hundredth of a percentage point. Yields and bond prices move in opposite directions.
10-year Treasury yields have been confined to a tight trading range for the past two weeks. CRT Capital’s head of government bond strategy David Ader, charted the range of the yield moves in a histogram, shown below.
“The concentration of the 10-year yield range has been within 10 basis points over the past two weeks. We think that says as much about this market as the few basis points up or down we get in the overnight or day sessions and from those try to extract a bigger theme,” Ader wrote in emailed notes.
The yield on the two-year Treasury TMUBMUSD02Y, +3.16% was less than a basis point higher at 0.774% from 0.766% on Tuesday. And the yield on the 30-year bond TMUBMUSD30Y, +0.95% known as the long bond, was nearly unchanged at 2.603%.
Schnautz noted that the low levels of Treasurys in light of equity markets near their all-time highs suggests that investors are partially playing it safe while seeking returns elsewhere.
“The levels of the 10-year yield are not pricing in two rate hikes as the Fed is projecting currently. If the Fed’s view comes toward the market view, we might expect more of the sideways grind,” Schnautz said. The Fed is slated to meet at its two-day policy meeting on April 26-27.
The market isn’t expecting any rate hikes at the meeting next week, according to the CME Group’s FedWatch tool, with the Fed funds futures pointing to a 1% probability of an April hike. The probability of a rate hike in June is at 16%, while a chance of an increase in December is practically a coin toss.
Meanwhile, bond yields in Europe also inched lower. Germany’s 10-year bonds TMBMKDE-10Y, -8.62% known as bunds, was yielding at 0.148%, down 2 basis points.