Bond Report: 10 and 30-year Treasury yields inch higher early Tuesday

Longer-dated Treasury yields were slightly higher Tuesday, as global equity markets mostly rose and investors awaited speeches from Federal Reserve members ahead of the central bank’s next policy meeting in early November when it may announce the start of a reduction in its monthly bond purchases.

What are yields doing?

The 10-year Treasury note yields TMUBMUSD10Y, 1.595% 1.598%, compared with 1.583% at 3 p.m. Eastern Time on Friday.
The 2-year Treasury note TMUBMUSD02Y, 0.399% rate was at 0.395%, versus 0.419% a day ago, which represented a new 52-week high for the debt and its highest since March 18, 2020.
The 30-year Treasury bond TMUBMUSD30Y, 2.043% was yielding 2.046%, compared with 2.015% on Monday.

What’s driving the market?

After a jump Monday, Treasury yields were relatively steady Tuesday, with the 2-year Treasury yield edging back after extending a climb on Monday to the highest level since March of 2020.

On Tuesday, investors will see a host of Fed speakers delivering their final comments before the next policy meeting on November 2 – 3. . Those include San Francisco Fed President Mary Daly, who is slated to deliver introductory remarks at a Regional Banker Forum at 11 a.m. Eastern, Atlanta Fed President Raphael Bostic who will speak twice Tuesday at a Fed conference on careers in economics at 1 p.m. and a discussion with The Hill’s Editor at Large about at 2 p.m.

Meanwhile, Fed Gov. Michelle Bowman and Richmond Fed President Tom Barkin will talk about diversity and economic recovery at a Richmond Fed conference at 1:15 p.m., and the parade concludes with Fed Gov. Christopher Waller offering insights about the economic outlook at the Stanford Institute for Economic Policy Research at 3 p.m.

In economic reports, a report on U.S. housing starts and permits for September is due at 8:30 a.m., with economists polled by Econoday on average expecting a 1.621 million annual pace for starts, compared with 1.615 million in the month before, and permits are expect to slow to 1.680 million in September from 1.728 million in August.

Moves in government debt are set against expectations that the Fed will start to reduce its $120 billion in monthly purchases of Treasurys and mortgage-backed securities. Some analysts have been concerned, however, that the Fed may need to taper its pandemic-era purchases at faster clip as a prelude to soon lifting policy interest rates to curb inflation.

Yields for debt also have been sensitive to signs of near-term pricing pressures emanating from the energy market, with U.S. crude-oil futures CL.1, +1.12% rising to the highest level in about seven years.

What analysts are saying

“And yes, taper then rate hikes with the market quickly pricing in the latter. In the end, there is plenty of time between now and the middle of 2022,” wrote Gregory Faranello, executive director of AmeriVet Securities, in a Tuesday research note, referring to market-based expectations that the first interest rate hike might occur in the middle of next year.

“And once the taper process begins and rolls into 2022, the markets will reevaluate how quickly the Fed will deliver increases to official rates. In linear fashion (granted, could be quicker as per Powell) at $15 billion per month beginning next month, we end up at the June FOMC. Rate hikes that same month? ”