Treasury yields turn mixed as investors return from Good Friday holiday

What are yields doing?

• The yield on the 10-year Treasury note
  TMUBMUSD10Y,
  2.831%
  was 2.822%, compared with 2.808% Thursday afternoon — its highest level since Dec. 18, 2018, based on 3 p.m. Eastern levels, according to Dow Jones Market Data. It briefly topped 2.85% earlier Monday.

• The 2-year Treasury yield
  TMUBMUSD02Y,
  2.481%
  was 2.473%, compared with 2.442% Thursday afternoon. The yield fell 7.6 basis points last week.

• The 30-year Treasury yield
  TMUBMUSD30Y,
  2.944%
  was 2.914%, compared with 2.917% late Thursday. Thursday’s level was its highest since May 31, 2019.

What is driving the market?

Treasury yields have marched higher in 2022 as investors wrestle with inflation running at its hottest in four decades. Last week, data showed the year-over-year pace of U.S. consumer inflation at 8.5%, its hottest since 1981, though a slower rise in the monthly core inflation reading, which strips out volatile food and energy prices, fueled a debate over whether inflation may be peaking.

The Fed is seen pressing ahead with an aggressive tightening of monetary policy, including a likely half-point increase in the fed funds rate target, rather than the usual quarter-point increment, at its policy meeting next month and has outlined a tentative plan for a fast-paced reduction of its nearly $9 trillion balance sheet.

The spread between 2- and 10-year yields narrowed somewhat early Monday, though it’s resteepened from where it was from late March to early this month. That’s when the yield on the 2-year Treasury note moved above the 10-year rate, temporarily inverting the yield curve. A persistent inversion of that part of the curve is seen as a reliable recession warning signal.

See: Recession fears and the stock market — Is it too late to play defense?

China’s economy expanded 4.8% annually in the first quarter, which beat expectations.

The National Association of Home Builders’ monthly confidence index once again fell two points from the previous month to a reading of 77 in April, the trade group said Monday. The index remains at the lowest level since September.

St. Louis Fed President James Bullard, who dissented from the Fed’s March decision to hike the fed-funds rate by a quarter point by calling for a half-point increase instead, is due to speak at 4 p.m.

What do analysts say?

“Looking at the yield curve, the 10s-2s spread continued to widen out and is now smack in the middle of the 30-40 basis point resistance range, and we think that’s a critical resistance level,” said Tom Essaye, founder of Sevens Report Research, in a note.

“If this steepening in the yield curve is mostly technically driven, it should stall here. However, if the 10s-2s spread decisively breaks through 40 bps, we’ll again take that as a signal from the bond market that it simply does not believe the Fed will be tough enough to break inflation. And if that’s the case then it’s bullish for value and commodities, even considering current gains,” he wrote.