Bond Report: Long-dated Treasury yields post biggest three-day rise in weeks after Pfizer/BioNTech omicron report

Long-dated yields for U.S. government debt ended higher Wednesday, after posting the biggest three-day rise in three to four weeks as investors digested news suggesting the omicron variant of coronavirus may not impact the economy as much as feared.

Meanwhile, the 2-year yield, which is most closely associated with the near-term path of Federal Reserve policy, declined.

What are yielding doing?

The 10-year Treasury note

yield rose 2.9 basis points to 1.508%, up from 1.479% at 3 p.m. Tuesday.

The 30-year Treasury
or the long bond, rose 7.9 basis points to 1.874%, compared with 1.795% on Tuesday.

It was the highest levels for the 10- and 30-year yields since Nov. 29, based on 3 p.m. levels, according to Dow Jones Market Data. Both maturities also posted their biggest three-day rise since Nov. 15 and Nov. 10, respectively.

The 2-year Treasury note rate

declined 1 basis point to 0.677%, down from 0.687% in the prior session. It was still the yield’s second-highest level this year.

What’s driving the market?

Reports on vaccines and treatments against the omicron strain of coronavirus dictated market moves in stocks and bonds this week.

Most Treasury yields moved higher on Wednesday after a report from Pfizer Inc.

and BioNTech SE

said results from an “initial laboratory study” showed that their COVID-19 vaccine neutralized the omicron variant after three doses, or the full two-dose regimen plus a booster shot.

Overall, global markets turned optimistic this week about the impact of the omicron variant and a move by China’s central bank to lower banks’ reserve requirement ratio, which set the stage for easier monetary policy to boost its slowing economy.

However, the Federal Reserve’s plan to tighten monetary policy by reducing its bond purchases has served to curb investor enthusiasm. The Fed meets next week on Dec. 14-15.

In Wednesday’s data, U.S. job openings rose to 11 million in October, versus the 10.6 million forecast of economists polled by Dow Jones, and the job-quitting rate slipped to 2.8% from 3% the prior month.

Meanwhile, a $36 billion auction of 10-year Treasury notes produced “unremarkable stats,” according to Jefferies economists Thomas Simons and Aneta Markowska.

What analysts are saying

“Great news from Pfizer that a booster will work in adding solid protection against Omicron and stocks are celebrating but I want to emphasize that what the Fed does from here should be the market’s predominant focus,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group, in a Wednesday note.

“At least with QE, the Fed is ending a $1.44 Trillion annualized asset purchase program possibly within the next 3 months. That is a lot of liquidity flow that is going to zero, quickly,” the CIO wrote.

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