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Bond Report: 10-year Treasury rate jumps above 3.6% after ‘sloppy’ auction as yields advance for third day

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Investors sold off the 10-year Treasury note following a weaker-than-average auction on Monday, pushing its yield above 3.6%.

What’s happening

The yield on the 2-year Treasury
TMUBMUSD02Y,
4.398%

was up at 4.398% versus 4.328% on Friday. Yields move in the opposite direction to prices.

The yield on the 10-year Treasury
TMUBMUSD10Y,
3.613%

advanced to 3.611% from 3.567% Friday afternoon.

The yield on the 30-year Treasury
TMUBMUSD30Y,
3.575%

rose to 3.57% from 3.550% late Friday.

What’s driving markets

Monday’s 10-year note reopening produced a bid/cover, plus indirect and direct takedowns, that were “all marginally weaker than the recent averages, but not dramatically so,” said economists Thomas Simons and Aneta Markowska of Jefferies. In a note, they said that even though the reopening was “quite sloppy” and tailed by 3.7 basis points, “the supporting stats don’t look all that terrible.”

Read: 10-year yield hits session highs after weakest auction since 2009

Meanwhile, investors moved into wait-and-see mode ahead of the November U.S. consumer-price index on Tuesday and the Federal Reserve’s monetary policy decision on Wednesday. Economists expect the year-over-year headline CPI rate to drop to 7.3% for last month from 7.7% in October — down from a nearly 41-year high of 9.1% in June. Bond bulls are hoping inflation readings will continue to decline, allowing the Fed to ease the size and speed of its interest-rate hikes.

Markets are pricing in a 74.7% probability that the Fed will raise interest rates by 50 basis points to a range of 4.25% to 4.50% on Wednesday, according to the CME FedWatch tool. The central bank is still mostly expected to take its fed-funds rate target to at least 4.75% to 5% by March, according to 30-day Fed Funds futures.

Two other important central banks have policy meetings this week, too. The European Central Bank and Bank of England are expected to raise rates by 50 basis points each on Thursday.

Source: Tradeweb

What analysts are saying

“Traders are navigating a low-volume, higher-stakes day while keeping the inversion trade front and center,” said Jim Vogel, an executive vice president at FHN Financial in Memphis. The 10-year yield approached the 10-year auction near its highs of the last six sessions, according to Vogel, and stayed near those levels after what he described as a “sloppy” sale.

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