Bond Report: Treasury yields trade lower as U.S. consumers suffer loss of confidence in early August

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U.S. Treasury yields traded lower on Friday after the University of Michigan’s gauge of consumer sentiment plunged this month on the view that the delta variant of the coronavirus means the pandemic isn’t ending anytime soon.

What are yields doing?
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.315%

    yields 1.327%, versus 1.366% at 3 p.m. Eastern Time on Thursday. Yields for government debt move opposite to prices.

  • The 30-year bond
    TMUBMUSD30Y,
    1.956%

    was yielding 1.966%, compared with 2.013% a day ago.

  • The 2-year Treasury note rate
    TMUBMUSD02Y,
    0.209%

    was at 0.217%, from 0.227% on Thursday.

What’s driving the market?

The University of Michigan’s gauge of consumer sentiment plunged to a preliminary August reading of 70.2 from a final July reading of 81.2 — missing the expectations of economists polled by the Wall Street Journal. A barometer of their expectations also fell, to 65.2 from 79 in July.

Meanwhile, other data released Friday shows that a rise in U.S. import prices cooled off in July — producing the smallest gain since November.

The moves in yields come after the July producer-price index, a measure of the prices businesses receive for their goods and services, published Thursday, rose for the sixth month in a row, countering a report on Wednesday of the July consumer price index that suggested pricing pressures may be moderating.

Yields on the long end of the curve had been moving higher earlier this week, suggesting fixed-income investors were getting acclimated to the idea of the Federal Reserve announcing an end to its monthly purchases of $120 billion in Treasurys and mortgage-backed securities later this year or early next year.

Most economists expect the Fed to soon announce plans to pull back on its monetary accommodation, introduced to support markets and the economy during the pandemic in the past year, according to a Reuters poll.

The Fed is seen as raising the topic of tapering its asset purchases during the three-day Jackson Hole Economic Symposium, which starts on Aug. 26.

What analysts are saying

The plunge in the University of Michigan consumer confidence “suggests the latest wave of virus cases driven by the delta variant could be a bigger drag on the economy than we had thought,” Andrew Hunter of Capital Economics wrote in a note. “With the fiscal stimulus boost now well passed and surging prices starting to hit real incomes, the drop in confidence is another reason to expect consumption growth to slow sharply over the coming months.”

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