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Bond Report: 10-year Treasury climbs to highest yield in a month as investors digest Powell’s re-nomination to Federal Reserve

Yields for U.S. government debt were climbing Tuesday, pushing the benchmark Treasury 10-year note to the highest since late October, in the lead-up to the Thanksgiving on Thursday.

Treasury yields advanced as investors continued to digest President Joe Biden’s nomination on Monday of Jerome Powell for a second four-year term as Federal Reserve Chairman, with growing expectations that he will drive interest rates higher.

What are yields doing?

The 10-year Treasury note
TMUBMUSD10Y,
1.645%

yield was at 1.646%, which would put the benchmark bond near its highest level since Oct. 22-25, compared with 1.625% at 3 p.m. Eastern Time on Monday.

The 2-year Treasury note
TMUBMUSD02Y,
0.609%

rate was at 0.621%, versus 0.580% on Monday, putting the yield at its highest since around March of 2020.

The 30-year Treasury bond
TMUBMUSD30Y,
1.993%

yields 1.992%, up from 1.978% Monday afternoon.

What’s driving the market

Treasury yields are rising higher on bets that Powell has a new mandate to accelerate the pace of the Fed’s reduction of monthly asset purchases, with an eye toward curbing a surge in inflation and eventually lifting interest rates.

Yields for the shorter-dated debt, the most sensitive to changing interest-rate expectations, have risen more briskly. The 2-year Treasury note yield is hanging around its highest level since March of 2020.

But yields have risen across the board, with Monday marking the sharpest yield climb for the 2s, 10s and 30-year government debt since Nov. 10, according to Dow Jones Market Data.

The selloff in bonds also has been amplified by seasonally lower volumes, analysts say, noting that the days before U.S. Thanksgiving tends to be comparatively thinly traded.

In Monday’s data releases, the IHS Markit U.S. flash composite purchasing managers indexes for the manufacturing sector rose to 59.1 in November from 58.4 previously, while the gauge for services dropped to 57 from a prior reading of 58.7. Though the economy continues to run hot, the rate of expansion in business activity has slowed this month, underscoring the continued struggle with supply constraints, according to Chris Williamson, IHS Markit’s chief business economist.

Meanwhile, the White House announced the release of 50 million barrels of oil from strategic reserves, in coordination with other countries, to help ease pricing pressures, surging demand, and supply-chain bottlenecks, though crude oil futures recovered quickly.

Read: U.S., Other Countries to Tap Strategic Oil Reserves in Bid to Tame Inflation

Later in the session, there is an auction of $24 billion in 2-year of floating rate Treasury notes and a sale of $59 billion in seven-year
TMUBMUSD07Y,
1.569%

notes.

What strategists are saying

“Monday’s sell-off continued overnight, primarily because there’s nothing to stop it before the US holiday.  Volumes fell quickly after the triple hit from hawkish EU central bank talk, the big increase in real rates after Powell’s reappointment, and two weak Treasury auctions.  Selling is focused this morning on 7s and 5s, and small moves are enough to produce new highs on the 5-yr,” wrote Jim Vogel, executive vice president at FHN Financial.

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