Bond Report: Treasury yields slide ahead of Fed minutes, bond auction

U.S. Treasury yields edged lower on early Wednesday’s trade even though the S&P 500 SPX, +0.17% hit an all-time high on Tuesday.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.654% fell 1.6 basis points to 0.651%, while the 2-year note rate TMUBMUSD02Y, 0.133% was at 0.143%. The 30-year bond TMUBMUSD30Y, 1.372% lipped 2.8 basis points to 1.371%.

What’s driving Treasurys?

Even as stocks hit new heights on Tuesday, yields have stayed in their tight range between a ceiling of 0.90% and a floor of 0.50% since March. The uncertainty around the COVID-19 pandemic's path in the U.S. and the expectation for interest rates to remain near zero for the foreseeable future have prevented U.S. Treasurys from selling off.

In the afternoon, minutes of the Federal Open Market Committee’s July meeting could offer clues on what it would take for the Fed to raise interest rates.

The U.S. Treasury Department will unload $25 billion of new government bonds onto the market at 1 p.m. ET. Since weighing on trading in Treasurys last week, yields have settled down as the impact of the wave of debt supply waned.

An auction for 30-year German government bonds was oversubscribed by 2.9 times, the highest demand seen since 1997, according to Bloomberg.

What did market participants’ say?

“The market, after last week’s back-up, has traded with an underlying bid through most of this week with [20-year notes] one of the best performing benchmarks but the additional auction size and summer volumes may result in tepid demand,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald.

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