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Bond Report: Treasury yields little-changed, even as China unrest raises global growth concerns


Bond yields were mostly steady on Monday, amid unrest in China, which sparked some worries about prospects for the global economy.

What’s happening

The yield on the 2-year Treasury note

slipped to 4.469%, down 1 basis point, from 4.479% on Friday. Yields move in the opposite direction to prices.

The yield on the 10-year Treasury note

was at 3.701%, virtually identical to its Friday levels.

The yield on the 30-year Treasury bond

was at 3.748%, down marginally from 3.751% at the end of last week.

What’s driving markets

Widespread COVID-19 unrest in China has raised concerns about global economic growth, but appeared to do little to inspire substantial and lasting moves in U.S. Treasurys.

Investors in government debt were also weighing the next move from the U.S. Federal Reserve, with some betting that the central bank will the pace of interest-rate increases, as indicated in the minutes of its most recent policy meeting.

However, likely offsetting some of the decline in yields was news that the U.S. festive shopping season had gotten off to a strong start, suggesting there was little evidence to date that consumers are reining in spending despite the Fed’s attempts to cool the economy.

Markets were pricing in a 75% probability that the Fed will raise interest rates by another 50 basis points to a range of 4.25% to 4.5% 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.

St. Louis Fed President James Bullard, who was interviewed by MarketWatch on Monday, said the Fed will need to keep interest rates above 5% into 2024 to tame inflation. Meanwhile, John Williams, president of the New York Fed, also signaled on in a Monday speech that the economy was going to get even weaker than the central bank had previously estimated.

“We are already seeing some of the effects of tighter monetary policy,” Williams said in a virtual speech to the Economics Club of New York. “As this continues, I expect real [gross domestic product] to increase only modestly this year and in 2023.”

There was no economic data of note Monday.

Later in the week, however, investors will focus on economic reports, including home prices data and a consumer confidence index on Tuesday; the ADP employment report, the revision to third quarter GDP and the Fed’s Beige Book on Wednesday.

On Thursday, manufacturing PMIs and the personal consumption measure of inflation will be released and the nonfarm payrolls report will be the main event on Friday.

Stock Market Today: Live coverage of the market action

What are analysts saying

“The surging Covid cases in China and the protests in several cities seemed to set the tone for today’s session,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. While equity markets in Asia were hit hardest, “bond markets are quieter.” 

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