Tag Archives: U.S. 10 Year Treasury

Business

Bank of Japan shocks global markets with bond yield shift

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The Bank of Japan on Tuesday shocked global markets by widening the target range for its 10-year government bond yield.

Kazuhiro Nogi | Afp | Getty Images

Global markets were jolted overnight after the Bank of Japan unexpectedly widened its cap on 10-year Japanese government bond yields, sparking a sell-off in bonds and stocks around the world.

The central bank caught markets off guard by tweaking its yield curve control (YCC) policy to allow the yield on the 10-year Japanese Government Bond (JGB) to move 50 basis points either side of its 0% target, up from 25 basis points previously, in a move aimed at cushioning the effects of protracted monetary stimulus measures.

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In a policy statement, the BoJ said the move was intended to “improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions.”

The central bank introduced its yield curve control mechanism in September 2016, with the intention of lifting inflation towards its 2% target after a prolonged period of economic stagnation and ultra-low inflation.

The BoJ — an outlier compared with most major central banks — also left its benchmark interest rate unchanged at -0.1% Tuesday and vowed to significantly increase the rate of its 10-year government bond purchases, retaining its ultra-loose monetary policy stance. In contrast, other central banks around the world are continuing to hike rates and tighten monetary policy aggressively in an effort to rein in sky-high inflation.

The YCC change prompted the Japanese yen and bond yields around the world to rise, while stocks in Asia-Pacific tanked. Japan’s Nikkei 225 was down 2.5% on Tuesday afternoon. The 10-year JGB yield briefly climbed to over 0.43%, its highest level since 2015.

U.S. Treasury yields spiked, with the 10-year note climbing by around 7 basis points to exceed 3.66% and the 30-year bond rising by around 9 basis points to 3.7%. Yields move inversely to prices.

Shares in Europe also retreated at the open, with the pan-European Stoxx 600 shedding 1% in early trade before recovering slightly. European government bonds also sold off, with Germany’s 10-year bund yield adding almost 9 basis points to 2.2840%.

‘Testing the water’

“The decision is being read as a sign of testing the water, for a potential withdrawal of the stimulus which has been pumped into the economy to try and prod demand and wake up prices,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“But the Bank is still staying firmly plugged into its bond purchase program, claiming this is just fine tuning, not the start of a reversal of policy.”

That sentiment was echoed by Mizuho Bank, which said in an email Tuesday that the market moves reflect a sudden flurry of bets on a hawkish policy pivot from the BoJ, but argued that the “popular bet does not mean that is the policy reality, or the intended policy perception.”

“Fact is, there is nothing in the fundamental nature of the move or the accompanying communique that challenges our fundamental view that the BoJ will calibrate policy to relieve JPY pressures, but not turn overtly hawkish,” said Vishnu Varathan, head of economics and strategy for the Asia and Oceania Treasury Department at Mizuho.

“For one, there was every effort made to emphasize that policy accommodation is being maintained, whether this was in reference to intended as well as potential step-up in bond purchases or suggesting no further YCC target band expansion (for now).”

Spikes in volatility

The Bank of Japan noted in its statement that since early spring, market volatility around the world had risen, “and this has significantly affected these markets in Japan.”

“The functioning of bond markets has deteriorated, particularly in terms of relative relationships among interest rates of bonds with different maturities and arbitrage relationships between spot and futures markets,” it added.

The central bank said if these market conditions persisted, it could have a “negative impact on financial conditions such as issuance conditions for corporate bonds.”

Luis Costa, head of CEEMEA strategy at Citi, indicated on Tuesday that the market move may be an overreaction, telling CNBC there was “absolutely nothing stunning” about the BoJ’s decision.

“You have to take this BoJ measure in the context of a positioning in dollar-yen that was obviously not expecting this tweak. It’s a tweak,” he said.

Japanese inflation is projected to come in at 3.7% annually in November, according to a Reuters poll last week — a 40-year high, but still well below the levels seen in comparable Western economies.

Costa said the Bank of Japan’s move was not geared toward combating inflation but addressing the “infrastructure and the dynamics of JGB trading” and the gap in volatility between the trade in JGBs and the rest of the market.

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Business

Sharp drop in mortgage rates does little to boost demand

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A home for sale in the Mission Hills area of Los Angeles Tuesday, Oct. 11, 2022 in Mission Hills, CA.

Brian Van Der Brug | Los Angeles Times | Getty Images

Mortgage application volume rose 2.7% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. An additional adjustment was made for the Veteran’s Day holiday.

The small increase followed a government report last week showing that inflation may be starting to ease. That, in turn, sent bond yields plunging and mortgage rates with them. Thursday saw the sharpest one-day drop in the average rate on the 30-year fixed mortgage since daily record-keeping began in 2009.

On a weekly average, the rate on the 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 6.9% from 7.14%, with points decreasing to 0.56 from 0.77 (including the origination fee) for loans with a 20% down payment.

On a daily basis, the rate on Thursday alone dropped 60 basis points, according to a separate survey from Mortgage News Daily.

Applications to refinance a home loan fell 2% for the week and were 88% lower than the same week one year ago. The rate drop came toward the end of the week, and Friday was a federal holiday, Veteran’s Day, so it is possible refinance demand has yet to react fully to the rate drop.

Mortgage applications to purchase a home, which don’t generally react quickly to interest rate changes, increased 4% for the week and were 46% lower than the same week one year ago.

“Purchase applications increased for all loan types, and the average purchase loan dipped to its smallest amount since January 2021,” said Joel Kan, a Mortgage Bankers Association economist.

Loan sizes may be falling too due falling home prices or potentially more first-time buyers getting into the market again at the entry level.

Mortgage rates did not move much to start this week, but the yield on the U.S. 10-year Treasury dropped Tuesday, first in the morning after a monthly read on U.S. producer prices increased at a slightly slower pace than expected.

They fell further later, hitting a nearly six-week low, after news broke that missiles hit Poland, killing two people. That sparked fears of greater political risk in the already war-torn region. Mortgage rates loosely follow the yield on the 10-year Treasury.

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Business

U.S. Treasurys as traders look to PPI inflation data

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Treasury yields fell on Tuesday as markets awaited the release of October’s producer price index figures and digested U.S. Federal Reserve speaker commentary.

At around 4:20 a.m. ET, the yield on the benchmark 10-year Treasury was down by around three basis points to 3.8367%. The 2-year Treasury yield was last at 4.3677% after declining by four basis points.

Yields and prices have an inverted relationship. One basis point is equivalent to 0.01%.

Traders looked ahead to the latest PPI figures which are due later in the day. The PPI reflects wholesale inflation by measuring how prices paid to producers for goods and services develop.

Markets are hoping that the data will provide more clarity on whether overall inflation is cooling, after consumer inflation figures released on Thursday hinted at this.

Fed Governor Christopher Waller suggested on Monday that last week’s data was only part of the bigger picture and other data points would have to be considered before drawing any conclusions.

He also indicated that the Fed would consider slowing rate hikes, but a pause to them is not imminent.

Federal Reserve Vice Chair Lael Brainard also hinted at a potential slowdown of rate hikes in remarks made on Monday.

Investors have been following Fed speaker comments closely as uncertainty about the central bank’s future policy and concerns about the pace of rate hikes leading the U.S economy into a recession have continued.

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Business

Stocks lower, Japanese yen nears 150 per dollar

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An employee works at the Tokyo Stock Exchange (TSE), operated by Japan Exchange Group Inc. (JPX), in Tokyo, Japan, on Thursday, Jan. 13, 2022.

Toru Hanai | Bloomberg via Getty Images

Shares in the Asia-Pacific traded lower on Thursday as economic fears weigh.

The Hang Seng index in Hong Kong fell 2.42% after briefly dropping 3%, hitting its lowest level since May 2009. The Hang Seng Tech index was 3.42% lower at the lunch break.

Kelvin Tay, regional chief investment officer at UBS, said the steep drop in Hong Kong markets is due to the government’s “unprecedented silence on key economic indicators.”

“It’s largely because of concerns over the economic outlook and a rise of Covid cases in the middle of the party congress in Beijing,” he said.

In Japan, the Nikkei 225 lost 1.38% and the Topix shed 0.91%. The S&P/ASX 200 in Australia declined 1.35%.

Mainland China’s Shanghai Composite fell 0.39% and the Shenzhen Component slipped 0.602%.

South Korea’s Kospi dipped 1.6% and the Kosdaq was 2.11% lower. The MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.72%.

The offshore yuan touched a record low against the U.S. dollar overnight, weakening to 7.2745 per dollar. It last traded at 7.2612. The Japanese yen reached yet another fresh 32-year low of 149.95 against the greenback.

U.S. stocks fell as Treasury yields climbed on Wednesday stateside, with the benchmark 10-year yield touching 4.138%, the highest level since July 23, 2008.

The Nasdaq Composite shed 0.85% to close at 10,680.51, while the S&P 500 declined 0.67% to 3,695.16. The Dow Jones Industrial Average lost 99.99 points, or 0.33%, to finish the day at 30,423.81.

— CNBC’s Chery Kang, Jesse Pound and Tanaya Macheel contributed to this report.

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Business

Bond yields higher following market slumps, job data

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U.S. Treasury yields traded higher on Tuesday as investors digested Monday’s market retreat and the previous week’s data releases that will guide the Federal Reserve’s policymaking.

The yield on the benchmark 10-year Treasury note rose 6 basis points, trading at 3.9531% at around 5:30 a.m. ET. The yield on the 30-year Treasury bond climbed 7 basis points to 3.9173%. Yields move inversely to prices, and a basis point is equal to 0.01%.

The yield on the 2-year Treasury, the part of the curve most sensitive to Fed policy, was up by 2 basis points to 4.3329%.

The retreat from U.S. bonds appears to be picking up pace as commercial banks, pension funds and foreign governments step away, and the Fed increases the pace at which it plans to sell treasuries from its balance sheet. U.K. bonds are also seeing a dramatic slump as the Bank of England’s emergency move to purchase more gilts failed to calm markets.

Investors will be looking out for the data release on the NFIB (National Federation of Independent Business) Small Business Optimism Index on Tuesday, after the previous week’s release showed an unexpected decline in job openings, slower job growth than forecast and a lower-than-predicted unemployment rate.

The previously released data suggested a continued path of rate hiking for the Fed, which has contributed to recent days’ slides in the stock market.

The New York Fed will release its Survey of Consumer Expectations, which provides a look into consumer’s expectations for overall inflation and prices of food, housing and energy, as well as outlooks on earnings and jobs.

13-week and 26-week bonds are also due for auction Tuesday.

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Business

Treasury yields tumble for a second day, with 10-year rate below 3.6%

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Treasury yields fell across the board for a second day Tuesday as traders weigh actions from central banks going forward.

The benchmark 10-year Treasury was down 6 basis points to 3.587%, after having surpassed the 4% mark last week. The yield on the policy-sensitive 2-year Treasury fell 5 basis points to 4.045%.

Yields and prices move in opposite directions and one basis point equals 0.01%.

The moves appeared to be helping the stock market, as futures traded sharply higher Tuesday. Stocks also rallied Monday.

Markets also continued to absorb the unexpected decline of the U.S. Purchasing Managers’ Index data for the manufacturing sector, which measures factory activity.

That comes as the Federal Reserve maintains a hawkish tone about interest rates hikes, with speakers from the central bank emphasizing that lowering persistent inflation is a top priority for them.

Various Fed speakers are due to make remarks on Tuesday, which traders will pay close attention to in light of growing fears of a recession brought on by rate hikes being implemented too quickly.

Tuesday will also bring insights into the labor market as job openings data for August is released.  

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Business

10-year Treasury yield falls as markets digest Fed rate hike

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The yield on the benchmark 10-year Treasury fell on Friday as markets adjusted to the Federal Reserve’s interest rate hike and attention turned toward flash PMI (Purchasing Managers’ Index) data for September that is due to be released later in the day.

The 10-year Treasury note last traded at 3.6946%, down 1 basis point as of 4:12 a.m. ET. It had hit an over 11-year high on Thursday, rising to above 3.71% after gaining almost 20 basis points.

The policy-sensitive 2-year Treasury continued to hover around 4.1% after having risen off the back of the Federal Reserve’s interest rate hike. On Thursday, it had soared as high as 4.163% — a level not seen since October 2007.

Yields and prices move in opposite directions. One basis point is equivalent to 0.01%.

September flash PMI data is set to be released on Friday, giving markets preliminary insight into the economic state of the manufacturing and services industries for the month. PMI data is used as a key indicator for inflation and recession concerns as it reflects whether industries are growing or shrinking, as well as supply and demand.

Analysts are expecting the services sector to inch higher after contracting sharply in August. Meanwhile, growth in the manufacturing industry is set to drop, after slowing down close to 2020 levels last month.

Markets are also digesting the Federal Reserve’s 75 basis point interest rate hike that was announced on Wednesday as the central bank tries to curb inflation. Federal Reserve chairman Jerome Powell is set to give a speech with further insights on Friday.

 

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Business

Investors look ahead to Jackson Hole

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U.S. Treasury yields moved lower on Monday as investors looked ahead to the Jackson Hole economic symposium.

The yield on the benchmark 10-year Treasury note was down about 4 basis points at 2.9482% at 3:25 a.m. ET, while the yield on the 30-year Treasury bond traded lower by 3 basis points to 3.1937%. Yields move inversely to prices, and a basis point is equal to 0.01%.

The yield on the short-term 2-year Treasury note also traded marginally lower at 3.2467%.

Those moves come ahead of what could be a volatile week of trading. Investors are anticipating U.S. Federal Reserve Chairman Jerome Powell’s latest comments on inflation at the central bank’s annual Jackson Hole economic symposium.

Yields fell and then rose at the end of last week as markets mulled over the Fed’s released July meeting minutes. The Fed indicated that it would continue hiking rates until inflation slows down significantly, although the central bank could soon decrease its pace of tightening.

There are no major economic data releases due on Monday. The Treasury will auction $54 billion worth of 13-week bills on Monday and $42 billion worth of 26-week bills.

— CNBC’s Sarah Min and Samantha Subin contributed to this article.

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Business

Market jump after Fed hike is ‘trap,’ Morgan Stanley warns investors

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Morgan Stanley is urging investors to resist putting their money to work in stocks despite the market’s post-Fed-decision jump.

Mike Wilson, the firm’s chief U.S. equity strategist and chief investment officer, said he believes Wall Street’s excitement over the idea that interest rate hikes may slow sooner than expected is premature and problematic.

“The market always rallies once the Fed stops hiking until the recession begins. … [But] it’s unlikely there’s going to be much of a gap this time between the end of the Fed hiking campaign and the recession,” he told CNBC’s “Fast Money” on Wednesday. “Ultimately, this will be a trap.”

According to Wilson, the most pressing issues are the effect the economic slowdown will have on corporate earnings and the risk of Fed over-tightening.

“The market has been a bit stronger than you would have thought given the growth signals have been consistently negative,” he said. “Even the bond market is now starting to buy into the fact that the Fed is probably going to go too far and drive us into recession.”

‘Close to the end’

Wilson has a 3,900 year-end price target on the S&P 500, one of the lowest on Wall Street. That implies a 3% dip from Wednesday’s close and a 19% drop from the index’s closing high hit in January.

His forecast also includes a call for the market to take another leg lower before getting to the year-end target. Wilson is bracing for the S&P to fall below 3,636, the 52-week low hit last month.

“We’re getting close to the end. I mean this bear market has been going on for a while,” Wilson said. “But the problem is it won’t quit, and we need to have that final move, and I don’t think the June low is the final move.”

Wilson believes the S&P 500 could fall as low as 3,000 in a 2022 recession scenario.

“It’s really important to frame every investment in terms of ‘What is your upside versus your downside,'” he said. “You’re taking a lot of risk here to achieve whatever is left on the table. And, to me, that’s not investing.”

Wilson considers himself conservatively positioned — noting he’s underweight stocks and likes defensive plays including health care, REITs, consumer staples and utilities. He also sees merits of holding extra cash and bonds at the moment.

And, he’s not in a rush to put money to work and has been “hanging out” until there are signs of a trough in stocks.

“We’re trying to give them [clients] a good risk-reward. Right now, the risk-reward, I would say, is about 10 to one negative,” Wilson said. “It’s just not great.”

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Business

Treasury yields ahead of release of key inflation data

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U.S. Treasury yields ticked downward on Tuesday as traders prepared for key inflation figures due out later this week.

The 2-year dropped 6 basis points to trade at 3.0078% but remained above the 10-year Treasury, which dropped 6 basis points to 2.9225%, dropping back below the 3% mark. The yield on the 30-year Treasury bond traded 5 basis points lower at 3.1257%. Yields move inversely to prices, and a basis point is equal to 0.01%.

Markets are awaiting key inflation data this week. June’s consumer price index, scheduled for release Wednesday, is forecast to show headline inflation rising above May’s 8.6% level. That inflation figure also applies to energy and food.

All three major U.S. stock indexes closed in negative territory Monday.

The National Federation of Independent Business optimism index for June, which focuses on small businesses, is set to be published Tuesday, as is the IBD/TIPP Economic Optimism Index, which is the earliest monthly survey of consumer confidence.

The U.S. will also be releasing its Redbook for July, a sales-weighted record of year-on-year growth among a selection of large retailers representing some 9,000 stores. The 52-week bill is set for auction Tuesday.

Friday’s June employment report showed jobs growing at a faster rate than expected. Nonfarm payrolls increased 372,000 last month, according to the Bureau of Labor Statistics. Economists predicted the U.S. economy would add 250,000 jobs, according to the Dow Jones.

President Joe Biden is beginning his Middle East trip, which will include a visit to Saudi Arabia and meetings with OPEC leaders in an effort to push for higher oil production to ease prices.

U.S. Treasury Secretary Janet Yellen will meet with Japanese Finance Minister Shunichi Suzuki on Tuesday to discuss further sanctions against Russia for its war in Ukraine.

Gold hit its lowest level since late September as the dollar reached a two-decade high, trading at $1,732.40 per ounce at 8:30 a.m. in London.

On Friday, yields had jumped following the jobs report, on the assumption that the U.S. Federal Reserve will be more aggressive with its rate-hiking path.

—CNBC’s Samantha Subin and Matt Clinch contributed to this report.

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