Bear steepening continues as 10-year yield rises

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The bear-steepening trend continued on Monday, even as analysts say the selling in long-term bonds may have gone too far.

Bear steepening refers to long-term interest rates rising at a faster rate than short-term securities.

What’s happening

  • The yield on the 2-year Treasury
    was 5.13%, up 3 basis points. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    was 4.49%, up 5 basis points.

  • The yield on the 30-year Treasury
    was 4.59%, up 5.9 basis points.

What’s driving markets

The key item on the economics calendar this week comes Friday with the release of personal income and the PCE price index data. Ahead of that, investors will consider the factors that have lifted yields, namely a surprisingly strong labor market and a growing supply of debt, even amid signs of disinflation.

This week the Treasury Department auction schedule includes $48 billion in two-year notes, $49 billion in five-year notes and $37 billion in 7-year notes.

“Rates have reached a level that would take a sizable shock to induce material additional upside,” said Ronald Temple, chief market strategist at Lazard.

Tim Duy, chief U.S. economist at SGH Macro Advisors, says Fed officials’ use of the word “patience” suggests to him a central bank that would lift interest rates in December at the earliest, and not November, even as last week’s dot plot suggests one more rate hike this year.

The necessary data to confirm that the economy will be slowing down by the fourth quarter won’t be available until the December FOMC meeting even if the government avoids a shutdown and data continues to be released on schedule, said Duy.

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