By Sebastian Pellejero
U.S. government-bond yields rose Monday, capping a session of wild swings after the Federal Reserve announced it would widen its efforts to support corporate credit markets.
The yield on the benchmark 10-year Treasury note fell to 0.666% during early trading before reversing course during the afternoon to settle at 0.701%, according to Tradeweb. That is up from 0.698% at Friday's close. Yields fall when bond prices rise.
Yields reversed their early decline after the Fed said it would begin buying individual U.S. corporate bonds in addition to the exchange-traded funds it has also been purchasing. Stocks also recovered losses following the announcement.
Demand for Treasurys has risen in recent sessions, as a climb in new coronavirus cases in the U.S. and China also hit major stock indexes. States including Arizona, Texas and Arkansas reported an increased number of cases in the past week, while Chinese authorities have shut down parts of Beijing after logging a record number of new infections.
This week's economic data will provide investors with further indications of whether the U.S. recovery is taking hold. A gauge of manufacturing in New York state for June jumped by the largest margin since 2001, according to a Monday report from the New York Fed. On Tuesday, investors will be watching reports on retail sales and industrial production.
"The month of May told bond investors to think about the reopening of the economy. Now June has reminded everybody that each step of the way is its own move forwards, or back," said Jim Vogel, interest-rates strategist at FHN Financial.
Some analysts say the downward move in yields may be influenced by investors exiting a so-called steepening trade, where they bet that longer-term yields will climb faster than their short-term counterparts. Wall Street banks such as Bank of America and Morgan Stanley had recommended the trade in previous weeks, when improved data on jobs and manufacturing boosted investors' economic outlook.
"Unfortunately that macro outlook has become more complicated, so we've seen far less appetite for steepening trades right now," said Mr. Vogel.
Demand for Treasurys shows little sign of abating. Hedge funds and other large speculators now hold net bets that the 10-year Treasury yield will fall, according to data from the Commodity Futures Trading Commission. That is the first time since 2017.
Meanwhile, the U.S. Treasury will sell $17 billion of 20-year bonds on Wednesday.
During its meeting last week, the Fed committed to maintaining the size of its bond purchases without detailing which bonds it would buy. Chairman Jerome Powell said the Fed is planning years of such support, with the central bank projecting the economy to shrink 6.5% in 2020. Investors expect him to reiterate that message when he testifies before Congress on Tuesday and Wednesday.
Write to Sebastian Pellejero at email@example.com