Yield curve narrows as 2-year Treasury note rises and Dow industrials climb

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By Mark DeCambre

U.S. Treasury yields were mixed Tuesday, with the 2-year maturity rising, but longer-dated debt yields holding lower. Still, investors remained hopeful that the omicron variant of COVID would have limited economic impact, with that belief helping to lift the Dow industrials while limiting appetite for Treasurys.

An auction of 5-year notes are set for later in the session Tuesday.

What are yields doing?

What’s driving the market?

Yields on the shorter end of the Treasury curve were rising as investors shook off concerns about the economic impact of the omicron variant of the coronavirus.

While COVID spreads around the globe, particularly wreaking havoc on air travel due to rising cases among workers, investors believe the global economy can handle it. The Centers for Disease Control and Prevention has cut its recommended COVID-19 isolation time to five days, from 10, if affected individuals are symptom-free.

Debt investors parsed the S&P Case-Shiller U.S. house price index, which posted a 18.4% year-over-year gain in October, down from 19.1% the previous month. On a monthly basis, the index increased 0.8% between September and October

An auction of $59 billion in 5-year notes is due to be held at 1 p.m., which could further influence yields on shorter-dated debt.

Fixed-income investors have been digesting a faster reduction in monthly bond purchases by the Federal Reserve to combat inflation and expectations that policy makers could lift interest rates, which currently stand at a range between 0% and 0.25%, at least three times in 2022.

What strategists are saying

“Although [quantitative easing] does lower rates, it is better to think about mass-scale QE as accelerating borrowing by those with the best credit. Those who intrinsically pay more to borrow then find easier financial conditions when the economy recovers and the best credits are out of the way,” wrote Jim Vogel, analyst at FHN Financial Markets, in a Tuesday note.

-Mark DeCambre


(END) Dow Jones Newswires

12-28-21 1129ET

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