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Bond Report: Treasury yields hold ground as bond selloff stalls to start the week

Bond Report

Treasury yields on Monday were seeing a brief pause in last week’s bond-market selloff as investors looked forward to the Federal Reserve’s policy meeting later this week.

What are Treasurys doing?

The 10-year Treasury note yield

was up 0.7 basis point to 0.912%, while the 2-year note rate

edged 0.2 basis point lower to 0.214%. The 30-year bond yield

rose 2.2 basis points to 1.700%.

What’s driving Treasurys?

The sharp rise in government bond yields last week came on the back of heightened expectations for an economic rebound, after an employment report showed increased job gains, not losses, in May. The unemployment rate fell to 13.3% from 14.7%, but the Labor Department noted the jobless rate would likely have been 3 percentage points higher as not all furloughed workers were classified as unemployed.

Nevertheless, hopes for the easing of lockdown measures across all 50 states to bring life back to the labor market and the economy have weighed on prices for long-dated bonds, lifting their yields higher to their short-term peers and thus steepening the so-called yield curve.

The spread between rates of the 2-year and the 10-year notes stood at 70 basis points, representing its widest since March.

See: Here’s why a disorderly selloff is convulsing the once peaceful U.S. bond market

The Fed’s rate-setting body will hold its two-day policy meeting starting Tuesday, where investors will look for signs that the central bank may engage in policies that cap yields for certain maturities this year, or yield-curve control.

The Wall Street Journal reported Fed officials were particularly interested in how its counterparts in Australia had adopted a policy of capping yields for all bonds set to mature before a set date, as a way of underlining the central bank’s commitment to keeping policy accommodative.

Read: Get ready for the Fed to deploy untested monetary policy plan in September, says analyst

What did market participants’ say?

“We have our doubts and are inclined to take the data with a bag of salt. Perhaps payrolls will sink again next month and backward revisions will take the gloss off of Friday’s historic release. Until then, the bond market can run with the steepening theme but it must get past the Fed on Wednesday,” said Kenneth Broux, rates and FX strategist at Société Générale.

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