U.S. government bond yields on Monday were slipping, following a relatively rangebound stretch of trade for Treasurys in the final week of trade for May.
A dearth of major economic data to start the week will likely make for subdued action, with one piece of lower tier data on deck, the Chicago Fed National Activity Index, at 8: 30 a.m. ET.
How are Treasurys performing?
The 10-year Treasury note TMUBMUSD10Y, 1.610% was yielding 1.616%, off 1.3 basis points from Friday’s level at 3 p.m. Eastern Time.
The 30-year Treasury TMUBMUSD30Y, 2.309%, or long bond, rate was at 2.317%, down 1.5 basis points.
The 2-year Treasury note TMUBMUSD02Y, 0.149% was yielding 0.157%, off 0.2 basis point.
Bond prices rise as yields falls, and vice versa.
What’s driving the fixed-income market?
The 10-year Treasury yield has traded between a range of 1.49% and 1.71% so far this month in the face of a COVID recovery in the U.S.
That rangebound action isn’t likely to be broken in coming days, but buying in sovereign debt has been picking up in Europe, with Germany’s 10-year bund TMBMKDE-10Y, -0.126% touching a 2-year high at -0.07% on May 19.
European Central Bank boss Christine Lagarde last Friday said that it was too early for the central bank to scale back its emergency bond-buying measures, echoing views that have been stated by a number of members of the Federal Reserve.
However, minutes from last week suggest that the Fed may soon be ready to start discussing a rollback of its accommodations.
The Fed’s next policy meeting is slated for June 15-16 and the ECB’s meeting will be on June 10.
Rising yields in Europe and ECB policy could have implications for U.S. Treasury yields.
A number of Fed speakers are slated to speak later Monday. Those include Fed. Gov. Lael Brainard at 9 a.m., who will speak at a crypto conference sponsored by CoinDesk, as well as Cleveland Fed President Loretta Mester at 11 a.m., Atlanta Fed President Raphael Bostic at 12 p.m. and Kansas City Fed President Esther George at 5:30 p.m.
Looking further ahead this week, investors are awaiting the Fed’s preferred measure of inflation, the personal consumption expenditure, due at 8:30 a.m. on Friday.
What are strategists and traders saying?
“For while the U.S. has seen strong growth and surging inflation, which has lifted yields, the Fed still seems pretty steadfast in its view that conditions have not improved sufficiently to entertain the idea of bond tapering or other measures to tighten financial conditions. In the eurozone, it looks as if economic optimism is improving, after some softening earlier in the year,” wrote Steve Barrow, strategist at Standard Bank, in a Monday note.
“However, yields have started to rise again and the ECB is left with a tricky decision. Does it argue that financial conditions are still being unnecessarily tightened by the rise in yields, and maintain the faster pace of PEPP purchases? Or does it conclude that the economy is now sufficiently robust to accept the rise in yields and trim PEPP purchases back to their pre-Q2 pace?” he said, referring to the ECB’s pandemic emergency purchase program.