Economist's Insights

Today’s Trading Activity – Long Yields Broke Higher:

Jul 23, 2018

Bond yields broke higher to start the week as several price-bearish factors weighed on U.S. Treasury yields. The long end of the curve led the sell-off as the 30-year yield added 6.5 bps to 3.09%, its highest yield since June 12. The 10-year yield jumped 6.1 bps to 2.95%. Adding in last Friday’s increase, the 10-year yield has added 11.7 bps marking the most in two consecutive days since February 6-7.

Overnight reports about the BoJ discussing tweaks to its yield curve control policy had earlier pushed Japanese yields up by the most since August 2016.

Reports of a benchmark senior issuance from Berkshire Hathaway was cited by traders as adding to the upward pressure on yields. In addition, momentum may have played a part considering how tight of a range yields had been in. Over the last four weeks (since June 25), the 10-year yield had traded within a 9 basis point range.

With the 2-year yield up more modestly, the combined curve steepening over the last two days was the second largest of 2018. The 2s10s spread closed at 32.1 bps, the most since June 29. Higher rates and a steeper curve pushed financials to the top of the major equity indices. The S&P 500’s financial sector gained 1.3% as the broader index managed a more modest 0.2% gain. The index’s tech sector closed in a distant second, but the 0.5% daily gain was enough for a new all-time high.