Bond Report: Treasury yields fall as growth worries pressure stocks

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U.S. Treasury yields fell Thursday, pressured by worries about the spread of the delta variant of the coronavirus on the economic outlook even as minutes of the Federal Reserve’s July meeting, released a day earlier, showed most policy makers in favor of beginning to scale back monetary stimulus later this year.

What are yields doing?
  • The yield on the 10-year Treasury note

    fell to 1.226%, down from 1.273% at 3 p.m. Eastern on Wednesday. Yields and debt prices move in opposite directions.

  • The 2-year Treasury note yield

    declined to 0.206% from 0.217% late Wednesday.

  • The yield on the 30-year Treasury bond

    dropped to 1.854% from 1.913%.

What’s driving the market?

Investors appeared eager to snap up Treasurys as global equities fell, following a drop by U.S. stocks Wednesday afternoon following the release of the July Fed minutes. U.S. stock-index futures pointed to further losses Thursday.

Yields were largely higher after the minutes of the July policy meeting were published, which showed that “most” Fed officials were in favor of starting to reduce monthly purchases of bonds later this year, though “several” thought the move should wait until next year.

Markets were also reacting to growing worries that rising COVID-19 cases caused by the delta variant of the coronavirus could take a toll on economic activity. The number of U.S. cases of COVID-19 reported Wednesday rose to 140,893, up 47% from two weeks ago, while the daily average for deaths rose to 809, up 97% from two weeks ago and the highest seen since early April, according to a New York Times tracker.

Meanwhile, a U.K. study, from the University of Oxford based on real-world data, showed diminished effectiveness for coronavirus vaccines against the delta variant. After four to five months, the study found that two doses of the vaccine from Pfizer 

and BioNTech 

was as effective as two Oxford-AstraZeneca 


U.S. federal health officials on Wednesday said that those who have received the vaccines from Moderna Inc. 

and from Pfizer Inc. and BioNTech SE will be eligible for a third dose, starting in September.

Investors will see weekly U.S. data on first-time applications for jobless benefits at 8:30 a.m. Eastern. Economists expect the number of initial claims last week to fall to 365,000, down from 375,000 the previous week.

The Philadelphia Federal Reserve Bank’s August manufacturing index is also due at 8:30 a.m., while the Conference Board’s index of leading economic indicators is set for release at 10 a.m.

What are analysts saying?

“There are risk-off money flows across asset classes this morning as investors fear that central banks are poised to tighten policy into a global economic slowdown this fall,” said Tom Essaye, founder of the Sevens Report, in a note.

“Core bonds for now can’t choose sides between the upcoming tapering and
risk aversion. We think the risk climate will play first fiddle, suggesting a positive short term bias for bonds,” wrote analysts at KBC Bank in Brussels, in a note.