Bond Report: Treasury yields fight for direction before benchmark 10-year note auction

Bond Report

Published: July 8, 2020 at 8:17 a.m. ET

U.S. Treasury yields held their ground on early Wednesday’s trade ahead of a sale of benchmark government debt that could influence trading for the rest of the session.
What are Treasurys doing? The 10-year note yield
edged 0.3 basis point higher to 0.651%, while the 2-year note rate
fell 0.4 basis point to 0.161%. The 30-year bond yield
was down 0.4 basis point to 1.386%.
What’s driving Treasurys? The U.S. Treasury Department is selling $29 billion of 10-year notes in the afternoon, which could spur trading during the bond market’s summer doldrums. This will be followed up by a $19 billion auction for 30-year bonds on Thursday.
Analysts say volatility in Treasurys has noticeably fallen due to expectations for the Federal Reserve to keep monetary policy on hold over the next few years until economic growth, inflation and employment make a robust recovery.

The coronavirus pandemic showed no signs of halting its spread. New COVID-19 cases in the U.S. increased by 60,000. Texas reported more than new 10,000 cases on Tuesday. Infections have climbed in 38 states and regions over the past 14 days.
As for the Fed, Vice Chairman Richard Clarida said on Tuesday there was no limit to the amount of Treasurys the central bank could buy. And Cleveland Fed President Loretta Mester said a full recovery was still a long way away.
Read: Federal Reserve leaders see ‘bumpier’ recovery, slower decline in unemployment
What did market participants’ say? “The 10-year and 30-year auctions will control trader outlooks until tomorrow afternoon. With near-term fundamentals unlikely to break second quarter ranges, investor willingness to soak up $48 billion in long Treasuries will set the trading strategy outlook until Congress returns for the legislative sprint to enact more stimulus before August,” said Jim Vogel, an interest-rate strategist at FHN Financial.



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