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Bond Report: Treasury yields little changed ahead of busy week of jobs data

Treasury yields were mixed Monday, giving up a modest early rise, as investors awaited a busy week of jobs data, including Friday’s January employment report and continued to assess the path higher for interest rates after the Federal Reserve signaled last week that it will move aggressively to rein in inflation.

What are yields doing?

The yield on the 10-year Treasury note TMUBMUSD10Y, 1.777% was at 1.777%, compared with 1.779% at 3 p.m. Eastern on Monday. The 10-year rate traded above 1.8% in early action. Yields and debt prices move opposite each other.
The 2-year Treasury yield TMUBMUSD02Y, 1.160% was 1.165%, compared with 1.17% on Friday afternoon. The yield on the 2-year note saw its largest weekly rise since October 2019 last week.
The 30-year Treasury bond TMUBMUSD30Y, 2.097% was 2.099% versus 2.083% late Friday.

What’s driving the market?

At its first policy meeting of 2022 last week, the Federal Reserve signaled it will be aggressive in raising rates and otherwise pulling back on monetary stimulus as it attempts to rein in persistently high inflation. Investors are prepared for a steady stream of rate increases beginning in March, though some analysts have penciled in as many as seven hikes — one for each remaining policy meeting in 2022.

Atlanta Federal Reserve Bank President Raphael Bostic, in an interview with the Financial Times published Saturday, said policy makers could at some point boost rates by a half-point rather than the typical quarter-point increment if inflation remains stubborn. Bostic, who isn’t a 2022 voting member of the policy-setting Federal Open Market Committee, maintained his call for three quarter-point rate increases in 2022, but said a more aggressive approach was possible if warranted by economic data.

Kansas City Fed President Esther George, a 2022 voting member, said the U.S. central bank should raise interest rates soon and pursue a big reduction in its nearly $9 trillion stockpile of bonds. George had previously said she felt it would be appropriate to reduce the balance sheet earlier than it did in the previous tightening cycle.

See: Here’s where Fed voters stand on raising interest rates and reducing $8.8 trillion asset stockpile

Labor data will be in the spotlight this week, with December job openings and leavings data set for release on Tuesday morning, Automatic Data Processing’s take on January private-sector jobs is on Wednesday, weekly jobless-claims data on Thursday, and the official January jobs report on Friday.

What are analysts saying?

“The Fed once again tweaked its monetary message towards a more hawkish setting at last week’s meeting. This incremental approach may mean that the market does not become too unnerved but whether it is the right option to bring inflation back under control is another question,” said Steve Barrow, head of G-10 strategy at Standard Bank, in a note.

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