US Treasury yields fell Wednesday morning before a report on private sector employment was released, with quarter and month-end positioning being responsible for some of the moves in US Treasuries.
However, some analysts also said that lower government bond yields might suggest that fixed income investors aren't looking to see a sustained period of inflation above the Fed's annual target of 2%, although evidence suggests price pressures are penetrating the economic recovery from the COVID-19 pandemic.
How Treasurys perform
The yield on 10 year treasury bills
was 1.455% compared to 1.479% at 3:00 p.m. Eastern Time on Tuesday.
The interest rate on 30-year government bonds
was 2.066% versus 2.096% a day ago.
The 2-year government bond
returned 0.243% compared to 0.250% on Tuesday.
Fixed Income Driver
Investors will wait and see if the decline in government yields can continue into the second half of 2021.
Analysts have expressed some uncertainty about what the decline in yields signals, but some have suggested that it implies that bond investors are questioning the strength of the economic recovery from COVID.
Previous analysts had predicted that benchmark 10-year US Treasury bond yields would now rise to 2% as reports show that inflation is rising to historic levels amid supply chain constraints and growing consumer demand after the pandemic.
However, after rising to around 1.7% in March, 10-year Treasuries have largely fallen to the 1.40-1.50% of the last few weeks.
The Wall Street Journal wrote that conventional and inflation-linked government bond yields reflect inflation expectations that are no longer as buoyant as they were in March. Some argue that the weakening fiscal stimulus is partially blamed for the perception of a slightly less rosy economic outlook.
The economic turmoil of trillion dollar fiscal stimulus from Washington, including additional unemployment benefits and lump sum payments to US households, has already begun to subside from its peak.
According to analysts, Treasuries were also supported by foreign investors in the hunt for richer returns.
Looking ahead, markets expect the private sector payroll to be in June. Automatic Data Processing Inc.'s June report is due at 8:15 a.m. Eastern Time.
Regardless, at 9:45 am, investors will be on the lookout for an indicator of manufacturing activity in the Chicago area, Chicago's June purchasing managers' index.
A day after the S&P CoreLogic Case-Shiller National Home Price Index, which showed prices rose faster than ever in April, as buyers battled for competition, there is also a report of pending home sales that came in at 10 a.m. is due, the focus is on a limited number of apartments.
What strategists say
"The 10-year US Treasury yield plunged this week to 1.47%, dragged down by a less than expected rise in the PCE core price index on Friday," wrote Raffi Boyadjian, senior investment analyst at XM , in a daily memo.
"The decline in long-term yields boosted technology stocks and propelled the Nasdaq 100 and Nasdaq Composite to new all-time highs on Monday and Tuesday," he said.