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Bond Report: 10-year Treasury yield drops below 3.8% amid global growth concerns


Bond yields fell on Tuesday as traders worried that COVID-19 restrictions in China may further damage global economic growth.

What’s happening

The yield on the 2-year Treasury

was 4.521%, down from 4.544% on Monday. Yields move in the opposite direction to prices.

The yield on the 10-year Treasury

retreated to 3.77% from 3.825% on Monday afternoon.

The yield on the 30-year Treasury

fell to 3.849% from 3.905% as of late Monday.

What’s driving markets

Treasury yields edged lower as additional COVID-19 lockdowns in China were seen as increasing the chances of a global economic slowdown. Market sentiment was described by analysts as fragile, given the uncertainty over whether China would make a U-turn on its reopening plans.

Read: China announces first COVID deaths in months and unveils restrictions in Beijing and Guangzhou

The spread between the U.S. 2- and 10-year yields was around minus 73 basis points, one of its most inverted levels in more than 40 years and a sign that some say points to an inevitable recession.

There are no major U.S. economic releases on Tuesday. However, Kansas City Fed President Esther George is due to speak at 2:15 p.m.

Markets are pricing in a 76% probability that the Fed will raise interest rates by another 50 basis points to a range of 4.25% to 4.50% on Dec. 14, according to the CME FedWatch tool. The central bank is mostly expected to take its fed-funds rate target to at least 4.75% to 5% by March.Stock Market Today: Live coverage of Tuesday’s market action

What analysts are saying

“In terms of what’s coming out of China, there are growing concerns among investors that there’ll be a return to lockdowns following the weekend news that they’d had their first Covid death in six months,” said a team at Deutsche Bank. The latest developments have “all served to dampen the speculation of recent weeks that China might be moving gradually away from its zero-Covid strategy.”

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