10-Year Treasury yield drops to 5-month low below 1.23% as market is shaken by delta spread

Treasurys extended their rally Monday, pushing the yield on the 10-year bond below 1.23% to a five-month low as investors worried about the continued spread of the delta variant of the coronavirus causing it that COVID-19 sought safety in bonds.

How Treasuries perform?
  • The return on the 10-year Treasury TMUBMUSD10Y,
    fell 7.3 basis points to 1.229%, trading at its lowest point since Feb. 16 and falling below the 200-day moving average at 1.257%, according to FactSet.

  • The 2-year Treasury bill yields a TMUBMUSD02Y,
    decreased by 2 basis points to 0.214%.

  • The yield on 30-year Treasury bonds TMUBMUSD30Y,
    fell 8.1 basis points to 1.844%.

Yields fell last week. The 10-year yield fell 5.4 basis points, while the 30-year Treasury lost 5 basis points, representing a third consecutive decline in yields over the maturities. However, the 2-year saw a weekly gain of 1.1 basis points, which according to data collected by Dow Jones Market Data was the largest weekly gain since the period ending June 25.

What drives the market?

Global stock markets and other assets deemed risky came under pressure on Monday, with much of the debt attributed to jitters surrounding the ongoing spread of the delta variant, leading investors to seek safety in Treasury bills and other so-called core government debt such as German bunds, analysts said. .

Government bond yields have fallen significantly, after approaching 1.80% in March on expectations of a sharp pick-up in growth and inflation as the economy reopens. However, so-called reflation trade has slowed down, accelerating as concerns about the spread of the delta variant have cast doubt on the pace of the recovery in the coming months.

However, the magnitude of the decline in yields has also sparked debate, with investors questioning whether investors have become too complacent about inflation risks.

Read: Is the bond market wrong about inflation?

What are traders and analysts saying?

“Uncertainty about the impact of new corona outbreaks keeps investors erring on the cautious side. Core bonds remain a good offer,” KBC Bank analysts wrote in a note.

“From a technical standpoint, the US 10-year rate fell below 1.25% and the German 10-year rate TMBMKDE-10Y,
giving up -0.38% would light up further red lights on the reflationary story,” they said.