Treasury yields fall to 5-month low as investors flee stocks for safe-haven assets

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  • Bond rallied Monday as investors fled the stock market and flocked to safe-haven assets.
  • The drop in the yield highlights a drop in risk appetite among investors as COVID-19 cases increase worldwide.
  • The 10-year yield fell to 1.181% and an intraday low of 1.176% was the lowest since February 11.
  • See more stories on Insider’s business page.

Investors fled into the bond market Monday, pulling the yield on the closely watched 10-year Treasury to its lowest since February, with investors dashing out of equities on fears that rising COVID-19 infections will threaten recovery in the world’s largest economy.

Coronavirus cases have been rising worldwide, led by the Delta variant, pushing the number of infections to nearly 191 million, according to tracking by Johns Hopkins University. Concerns about mounting cases tipped into stocks, pulling the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite from recently set record highs.

The S&P 500 lost more than 2% intraday, and all 11 of the index’s sectors fell, though defensive groups such as consumer staples and health care fared better than most.

With investors fleeing so-called risk assets like stocks, US government bonds rallied and in turn sent the rate on the 10-year yield tumbling by 12 basis points to 1.181%. An intraday print of 1.176% was the lowest rate since February 11. The 10-year yield is tied to a range of loan programs such as mortgage lending.

“The global economy is barely surviving on life support, and another wave of infections may spur lockdowns that could signal the death knell for the tenuous recovery,” and risk aversion was most pronounced in the 10-year yield, said Peter Essele, head of investment management for Commonwealth Financial Network, in a note Monday.

All 50 US states have been reporting higher caseloads and Los Angeles County, the country’s largest, has reverted back to indoor mask mandates, impacting how businesses operate. Meanwhile, the UK posted more than 50,000 new cases for the first time in six months on Friday. In the Asian financial hub of Singapore, new cases have nearly doubled to their highest amount in 11 months.

“Fear of stagflation will be a major concern for investors if a resurgence in COVID infections causes economies to slow while consumer prices continue an upward trajectory,” said Essele.

US consumer prices rose in June, propelling the inflation rate to a higher-than-expected 5.4%, with prices springing higher for used cars, food and energy.

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S&P 500, Nasdaq close at records as investors shrug off inflation concerns

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The S&P 500 recorded a record high for the second trading day in a row while a rally in tech stocks helped lift the Nasdaq to a record high. Investors are awaiting a key Fed decision later this week. Technology was the best performing sector in the S&P 500, with Apple gaining 2% and Facebook climbing over 1%. The yield on the US 10-yr Treasury rose to 1.5% after hitting a three month low last week.

Investors are eagerly awaiting for signals from the US Federal Reserve later this week about a timetable for scaling back ultra-accommodative policies. The decision is due Wednesday, with most economists anticipating the central bank will leave its policy mostly unchanged.

Here’s where US indexes stood at the 4 p.m. ET close on Monday:

Strategists can’t seem to agree on whether inflation will be transitory or not, despite the Fed insisting it will be short lived.

In an interview with CNBC on Monday, billionaire investor Paul Tudor Jones said he’s preparing to go “all in” on his inflation trade if the Fed remains unconcerned about rising prices. But others note that last week’s CPI data was elevated due to year-over-year comparisons.

“The largest increases were limited to used vehicles, energy and airfare,” said Nuveen’s Saira Malik. “Given the lack of evidence of rampant, widespread inflation, we remain confident in the Fed’s ability to stay on-message, even if discussions of tapering come a few quarters earlier than originally expected.”

Elsewhere in markets, Lumber prices fell as much as 6% on Monday to briefly trade below $1,000 per thousand board feet for the first time since late March.

Bitcoin rose above $40,000 after Elon Musk suggested Tesla would accept payment in cryptocurrency once mining can be done using cleaner energy.

West Texas Intermediate crude gained as much as 1.2%, to $71.78 per barrel. Brent crude, oil’s international benchmark, rose 1.3%, to $73.64 per barrel, at intraday highs.

Gold fell as much as 1.8%, to $1845.70 per ounce.

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Gold spikes as as ‘epic’ miss in April jobs report eases worries about a Fed rate hike

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Gold prices picked up Friday.

  • Gold prices climbed to their highest since early February on Friday following the April US jobs report.
  • The gain of 266,000 jobs was well below expectations of 1 million jobs being added to payrolls.
  • The data miss pushed Treasury yields lower, make gold more attractive to buy.
  • See more stories on Insider’s business page.

Gold prices jumped Friday after the weak US monthly jobs report tamped down expectations of an interest-rate hike by the Federal Reserve, making the metal more attractive to investors looking to buy.

Gold jumped as much as 1.5% to $1,842.59, the highest price since February 10. The surge was set off after the Labor Department said nonfarm payrolls grew by 266,000 last month, well below the estimated gain of 1 million from a Bloomberg survey of economists. Payrolls increased for a fourth consecutive month but the print was the smallest since September.

The poor jobs showing sparked questions about the strength of the US economy’s recovery from the COVID-19 pandemic and supported the view that the Federal Reserve will keep holding its benchmark interest rates near zero.

“You’re going to see that the labor-market recovery is likely to take a lot longer than anyone was anticipating and that will push off some people’s rate-hike expectations a little bit and that’s positive for gold,” Ed Moya, senior market analyst at Oanda, told Insider.

Investors swooped into the bond market after the data, driving yields lower. The 10-year Treasury yield sank to an intraday low of 1.4710% from 1.5610% on Thursday. Lower rates can brighten the appeal of gold as the metal offers no yield.

“This jobs print was a miss of epic proportions and yields reacted with a pretty sharp decline,” Sean Bandazian, an investment analyst at Cornerstone Wealth, told Insider, noting that what has moved gold historically is the level of real interest rates. Real yield refers to the level of the 10-year yield rate minus the rate of inflation.

“The real rate backed down to where it was in February and gold, given its inverse correlation, almost perfectly has moved up to where it was [three months ago],” said Bandazian.

“Gold is 45% correlated with the 10-year Treasury bond. As fears of a Fed tapering recede after the weak employment report … gold is moving higher,” wrote Jay Hatfield, founder and CEO of Infrastructure Capital Advisors.

The 10-year yield, meanwhile, pared its loss. It’s possible that the “excessive reaction this morning” in the bond market triggered stops on the short side of the 10-year bond after the yield dropped below 1.5%, said Bandazian.

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Treasury yields will likely climb to a 2-year high in 2021 despite recent stabilization, Bank of America says

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The US bond market has experienced a big selloff during 2021.

The stunning rally in Treasury yields this year has stabilized for now but look for rates to resume their rise, says Bank of America, which foresees the 10-year Treasury marching up to a nearly two-year high of 2.5%. The 10-year yield hasn’t been above 2.1% since July 2019.

A spike in Treasury yields during 2021 has been a major focus for both bond and stock market investors. US debt has sold off massively this year in anticipation of hotter inflation rates that will likely accompany the US economy’s recovery from the COVID-19 pandemic.

Treasury yields rise as bond prices fall, with the march higher in yields implying more expensive borrowing costs for businesses and consumers.

The surge in long-dated yields, notably the 10-year yield’s rise to 14-month highs in mid-March, has largely cooled. The 10-year Treasury yield on Monday was around 1.587%, below the 1.76% level a month ago.

“We think technical factors combined with revised expectations on US growth are mostly responsible for the recent stabilization in US rates,” said Bank of America in a note Monday, saying the stabilization “subsequently justifies” a rally in emerging market and US equities and a selloff in the US dollar.

The 10-year yield, which is tied to a range of lending programs, during the first quarter scaled up quickly from about 1% at the start of 2021. Safe-haven bonds sold off as the US government rolled out more coronavirus vaccinations to millions of Americans and after lawmakers in March approved a $1.9 trillion fiscal stimulus program.

But now, “it should not be a surprise to anyone that the US economy will keep recovering at a fast pace. We started the year expecting 4.5% growth for 2021 and now we expect 7% and 5.5% for 2021 and 2022, respectively. The inability of US rates to selloff on the back of a strong March payroll number was the tipping point to stabilize the US rates market, the signal that most of the good news were priced in,” said Claudio Irigoyen, head of Latin America economics, equities, fixed income & FX strategy at Bank of America, in the note.

The US economy added 916,000 jobs in March, blowing past expectations of 660,000 jobs.

Irigoyen noted that there was a climb last week in yields in tandem with a rally in so-called risk assets. Last week, investors received a fresh round of strong US economic data including a nearly 10% jump in March retail sales and new unemployment filings hitting at a pandemic-era low.

“[Global] investors significantly reduced risk exposure on the back of the selloff in rates in 1Q21. Positioning clean up. Since asset managers didn’t observe redemptions, cash levels were abnormally high, in particular for EM dedicated investors. Investors with cash on the sidelines were waiting for US rates to stabilize to redeploy capital into risky assets,” he said, adding that “price action was dominated by short-term flow pressure.”

Investors, meanwhile, are still keeping tabs on communication from the Federal Reserve. The central bank has signaled that it plans to keep its benchmark interest rates near zero until at least 2024 but market participants have been questioning whether the Fed can stand still in the face of hotter inflation, which it aims to do to accommodate the economic recovery.

“Despite the recent stabilization in US rates, we keep our forecast of 2.15% and 1.5% for 10-year and 5-year Treasuries by year end,” said BofA. US economic growth “can surprise updated expectations to the upside during the summer, combined with positive (i.e. higher-than-expected) inflation surprises,” it said.

“In addition, fiscal policy in itself will continue pressuring on real rates as more infrastructure spending is still more likely than tax hikes, adding more to the already sizable fiscal deficit. Finally, the Fed in itself remains an important source of volatility,” wrote Irigoyen.

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Treasury yields rise to highest in 14 months as vaccinations accelerate and Biden prepares to unveil new spending plan

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S.,  June 2, 2017. REUTERS/Brendan McDermid
Traders work on the floor of the NYSE in New York.

  • The 10-year Treasury yield surpassed 1.7% on Tuesday, hitting a new 14-month high.
  • Investors are preparing for the government to issue more debt as President Biden reportedly seeks $4 trillion in infrastructure spending.
  • Technology stocks are lower as the 10-year marches higher.
  • See more stories on Insider’s business page.

Borrowing costs gauged by the 10-year Treasury yield hit a 14-month high Tuesday, with investors pricing in expectations of higher inflation and a stronger US economy as the government prepares to announce a new multi-trillion spending plan and more Americans receive COVID-19 vaccinations.

The 10-year yield marched up to 1.778% from 1.712% on Monday, extending this year’s fast-paced gain from about 0.9%. Alongside the gains have been pullbacks in technology shares that have largely surged in value since last March as investors sought exposure to companies that would fare well during extended pandemic-lockdown periods. Nasdaq-100 futures on Tuesday fell 0.8%.

The advance in the 10-year yield came as investors prepared for the unveiling by President Joe Biden of a $4 trillion infrastructure plan, potentially on Wednesday, according to the Washington Post. The price tag would include $3.5 trillion in tax hikes, the report said.

Such a pickup in spending would follow the $1.9 trillion fiscal stimulus package put into place earlier this month and more spending would lead the US government to seek more money to fund its plans.

“The prospect of higher debt issuance has seen the bond bears return lifting yields in the 10-year Treasury back above 1.70%,” and pushing up the US dollar, said Sophie Griffiths, a US and UK market analyst at Oanda, in a note.

While Washington and Wall Street gear up for more spending and higher consumer and producer prices, more Americans have been getting coronavirus vaccinations each day. Economists say a healthier population will lead to more businesses reopening and expanding their services. President Biden on Monday said 90% of Americans will be eligible for vaccinations by April 19.

While vaccinations are on the rise, so are new cases of COVID-19. Average daily cases are up about 15% in the past two weeks and average weekly hospitalizations have increased by 5%, the Centers for Disease Control and Prevention warned Monday.

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Tech stocks rebound as Treasury yields stabilize amid inflation fears

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  • Tech stocks staged a rebound on Friday amid stabilizing Treasury yields after a sharp sell-off the previous day.
  • On Friday morning an announcement from the Federal Reserve regarding bank capital rules sent the 10-year yield higher and banks stocks lower.
  • Yields rose this week as investors grew concerned that the stimulus will cause a rise in inflation.
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Tech stocks rebounded Friday after a sharp-sell off the previous day as Treasury yields stabilized.

Earlier on Friday, the Fed announced that its temporary pandemic-era rule that relaxed bank capital requirements will not be extended after March 31. That offset the positive effect of stabilizing bond yields, which then spiked on the news.

Bond yields have risen as investors grow concerned that the $1.9 trillion fiscal stimulus will cause a rise in inflation, leading the Federal Reserve to change policy and raise rates sooner than expected.

But some on Wall Street aren’t concerned about the 10-year rising for much longer. JPMorgan’s Marko Kolanovic expects yields to stabilize, pushing tech stocks higher and helping the S&P 500 finish the year at 4,400, a 12% gain from current levels.

Here’s where US indexes stood after the 4 p.m. close on Friday:

The Fed’s decision to let the bank capital requirement rule expire sent bank stocks lower on Friday. Shares of JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup all ended in the red.

Shares of Visa slipped as much as 6% on Friday after a report said the Department of Justice is investigating the firm’s debit-card practices. Visa is under investigation for “anticompetitive practices” in the debit-card market, reported the Wall Street Journal, citing unnamed sources.

Oil prices rose after tumbling 7% on Thursday. West Texas Intermediate crude rose as much as 2.9%, to $61.72 per barrel. Brent crude, oil’s international benchmark, rose 2.6%, to $64.95 per barrel, at intraday highs.

Gold jumped as much as 0.5%, to $1,745.47 per ounce.

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