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Bond Report: Long-dated Treasury yields advance by most in almost a week as data points to continued tight labor market


Ten- and 30-year Treasury yields posted their biggest gains in nearly a week on Tuesday, as investors assessed a closely watched gauge of labor-market tightness and continued to assess how fast and far the Federal Reserve will raise interest rates.

What are yields doing?

The yield on the 10-year Treasury note TMUBMUSD10Y, 1.800% rose 1.9 basis points to 1.799%, up from 1.780% at 3 p.m. Eastern on Monday.
The yield on the 2-year note TMUBMUSD02Y, 1.181% was little changed at  1.165% versus 1.163% on Monday afternoon.
The 30-year Treasury bond yield TMUBMUSD30Y, 2.126% rose 2.7 basis points to 2.124%, up from 2.097% late Monday.
It was the biggest daily gains for the 10- and 30-year rates since last Wednesday, based on 3 p.m. levels, according to Dow Jones Market Data.

What’s driving the market?

Treasurys are showing some signs of stability after a volatile January that saw the 10-year yield surge to a two-year high around 1.9% before pulling back. Investors are preparing for the launch of a cycle of rate increases by the Federal Reserve, which signaled at its January meeting that liftoff will likely come in March. Officials have also pointed to a potentially quicker start to the wind-down of the central bank’s balance sheet compared with the last tightening cycle once rate increases begin.

Labor data released Tuesday showed that the labor market continued to remain tight at the end of last year. U.S. job openings rose to 10.9 million in December from 10.8 million the prior month, and fewer Americans quit their jobs: Roughly 4.3 million in December, down from 4.5 million in November.

Also Tuesday, IHS Markit’s final reading of the U.S. manufacturing purchasing managers index came in at 55.5 for January versus a preliminary 55. Meanwhile, the closely followed ISM barometer of manufacturers slipped to a 14-month low of 57.6% in January as a wave of omicron cases thumped the U.S. economy and labor and supply shortages hindered production. Construction spending came in at a weaker-than-expected 0.2% month-over-month gain in December.

Automatic Data Processing’s estimate of January private-sector job creation will come Wednesday, while the Labor Department’s official January jobs report is set for Friday.

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What are strategists saying?

“The Treasury market continues to settle into a new trading range as the global central banking community reinforces the hawkish pivot that has defined the beginning of a hiking cycle that is expected to continue well into 2023,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.

“It’s notable that despite the bounce in domestic equities and a general easing of the initial risk-off sentiment seen throughout much of January, the Treasury market’s grand bearish repricing has stalled out – for now.”

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