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Bond Report: Treasury yields edge higher as investors weigh labor data for December

Treasury yields edged higher Tuesday to kick off February, as investors assessed a closely watched gauge of labor-market tightness and continued to assess how fast and far the Federal Reserve will raise interest rates.

What are yields doing?

The yield on the 10-year Treasury note TMUBMUSD10Y, 1.800% was at 1.798%, up from 1.780% at 3 p.m. Eastern.
The yield on the 2-year note TMUBMUSD02Y, 1.185% was 1.177%, compared with 1.163% on Monday afternoon.
The 30-year Treasury bond yield TMUBMUSD30Y, 2.137% was 2.134%, up from 2.097% late Monday.
The 2-year note yield rose 43.3 basis points in January for the biggest monthly jump since December 2009, according to Dow Jones Market Data. The 10-year yield jumped 28.4 basis points in January, while the 30-year yield increased by 20.9 basis points — the largest increases for both maturities since March.

What’s driving the market?

Treasurys are showing signs of stability after a volatile January that saw the 10-year yield surge to a two-year high around 1.9% before pulling back. Investors are preparing for the launch of a cycle of rate increases by the Federal Reserve, which signaled at its January meeting that liftoff will likely come in March. Officials have also pointed to a potentially quicker start to the wind-down of the central bank’s balance sheet compared with the last tightening cycle once rate increases begin.

Labor data released Tuesday showed that U.S. job openings rose to 10.9 million in December from 10.8 million the prior month, and that fewer Americans quit their jobs: Roughly 4.3 million in December, down from 4.5 million in November.

Also Tuesday, IHS Markit’s final reading of the U.S. manufacturing purchasing managers index came in at 55.5 versus a preliminary 55. The Institute for Supply Management’s closely watched January manufacturing index dropped to 57.6% in January from 58.8% previously.

Automatic Data Processing’s estimate of January private-sector job creation will come Wednesday, while the Labor Department’s official January jobs report is set for Friday.

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What are strategists saying?

“The Treasury market continues to settle into a new trading range as the global central banking community reinforces the hawkish pivot that has defined the beginning of a hiking cycle that is expected to continue well into 2023,” said BMO Capital Markets strategists Ian Lyngen and Ben Jeffery.

“It’s notable that despite the bounce in domestic equities and a general easing of the initial risk-off sentiment seen throughout much of January, the Treasury market’s grand bearish repricing has stalled out – for now.”

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