Treasury yields moved lower across the board on Wednesday, with the 30-year rate dropping to its lowest in almost two weeks, a day after the 10-year rate briefly traded below the 2-year rate for the first time since 2019.
Though the 2s/10s spread was no longer inverted on Wednesday, it flattened to as little as 1.5 basis points.
What are yields doing?
The 30-year Treasury bond yield BX:TMUBMUSD30Y fell 4.3 basis points to 2.479% from 2.522% late Tuesday. That’s the lowest level since March 18, based on 3 p.m. levels, according to Dow Jones Market Data.
The yield on the 10-year Treasury note
declined 4.2 basis points to 2.357%, down from 2.399% at 3 p.m. Eastern on Tuesday.
The 10- and 30-year rates are down 13.4 basis points and 12.4 basis points, respectively, over the last three trading days. Those are the largest three-day declines since March 1.
The 2-year Treasury yield
dropped 2.3 basis points to 2.326%, down from 2.349% Tuesday afternoon. Tuesday’s level was the highest since April 23, 2019.
What drove the market?
U.S. government bonds are likely to complete one of their worst quarters for total returns in the past 157 years on Thursday, according to data cited by Deutsche Bank AG’s Jim Reid, head of thematic research.
Even so, Treasurys rallied on buying interest Wednesday, which sent yields broadly lower and reversed a selloff from earlier in the day.
The inversion of the 2-year/10-year maturities in the yield curve can ring alarm bells given its record for preceding recessions, albeit with a lag. An inversion of the curve has preceded every recession since at least 1978, with just one false positive, according to an analysis by Baird. But the median length of time between an inversion and the onset of recession has been 18 months, according to Invesco’s Brian Levitt.
In U.S. data, private-sector payrolls rose by 455,000 in March, according to the ADP National Employment Report released Wednesday, and U.S. fourth-quarter gross domestic product growth was revised to an annualized 6.9% from 7% previously.
On Wednesday, Richmond Fed President Tom Barkin said in a Bloomberg interview that more U.S. businesses are able to pass along higher costs to consumers, and it remains to be seen how high the Federal Reserve will need to raise its benchmark policy interest rate to get inflation under control.
Meanwhile, his colleague, Kansas City Fed President Esther George, said the Fed must move “expeditiously” away from its easy policy stance. The Labor Department’s official take on March jobs is set for release Friday.
What analysts are saying?
“As has been the case throughout the bulk of March, a flattening curve to the point of inversion has dominated the macro narrative. 2s/10s inverted as far as -0.2 [basis points] — adding to our conviction that a durable trip below zero in this benchmark spread is a foregone conclusion,” wrote Ian Lyngen and Benjamin Jeffery, strategists at BMO Capital Markets, in a note.
“The rhetoric regarding ‘what it all means’ has intuitively picked up and while the correlation between 2s/10s and a looming recession doesn’t necessarily hold, there is little question that investors are favoring longer dated Treasurys over short dated paper as the Fed continues to signal 50 bp in May is the game plan — barring any unforeseen developments,” they wrote.