Treasury Yields Edge Higher on Recovery Optimism -- Update
07 July 2020 - 6:45AM
Dow Jones News
By Paul J. Davies
U.S. Treasury yields rose as signs of an economic bounce from
the Covid-19 pandemic encouraged investors to move money into
riskier assets.
The yield on 10-year Treasurys was 0.013 percentage points
higher on Monday than last week at 0.683%, while the two-year yield
was 0.004 points higher at 0.159%, according to Tradeweb. That put
the gap between the two yields at its largest level since June
17.
A widening gap between 10-year Treasury yields and those on
two-year Treasurys is a sign that investors expect faster growth
and higher interest rates in the future. This is known as a
steepening of the yield curve. Investors often sell Treasurys,
which are considered super safe, when they want to put more money
into riskier corporate debt or stocks. Bond yields rise as prices
fall.
While there has been a sharp increase in U.S. Covid-19 cases in
recent weeks, many investors believe there won't be a return to the
type of economic lockdowns imposed in March and April.
A quick rebound in spending among consumers, especially in the
U.S., has been one cause for optimism, according to Anna
Stupnytska, head of global macro at Fidelity International.
U.S. retail sales jumped 17.7% in May after dropping 14.7% in
April, even though the economy has only partly reopened. Other data
has also improved, with U.S. purchasing managers' survey numbers
for manufacturing moving back into expansionary territory last
week.
Others investors worry that bond investors are getting too
optimistic, according to Ralf Preusser, global head of rates
research at Bank of America Merrill Lynch.
"A recovery needs a sufficient response on the monetary policy,
fiscal policy and public health front," he said. Failure on any of
these could threaten the rebound as a whole, he added.
Fiscal policy, encompassing spending by governments to support
economies, is the main looming threat, analysts and investors say.
Some fear European governments aren't doing enough, while the U.K.
and U.S. are both due to cut back support programs from next month,
which Mr. Preusser called "worrying fiscal cliffs."
Ten-year yields have been climbing slowly but steadily since
June 26, when they closed at their lowest levels since mid-May.
German 10-year yields were also marginally higher on Monday at
minus 0.432%, while other European yields were marginally
lower.
Write to Paul J. Davies at paul.davies@wsj.com
(END) Dow Jones Newswires
July 06, 2020 16:30 ET (20:30 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.