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Bond Report: Treasury yields broadly advance after brief 2s10s inversion in prior session

Treasury yields rose on Wednesday, a day after the 10-year rate briefly traded below the 2-year rate and inverted their spread for the first time since 2019.

Though the 2s10s spread was no longer inverted in morning trading, it toggled back and forth between flattening and steepening, hovering around 5 basis points.

What are yields doing?
  • The yield on the 10-year Treasury note TMUBMUSD10Y, 2.407% was at 2.424%, up from 2.399% at 3 p.m. Eastern on Tuesday.
  • The 2-year Treasury yield TMUBMUSD02Y, 2.354% stood at 2.363%, up from 2.349% Tuesday afternoon, which was its highest 3 p.m. level since April 23, 2019, according to Dow Jones Market Data.
  • The 30-year Treasury bond yield TMUBMUSD30Y, 2.517% rose to 2.543% from 2.522% late Tuesday.

Read: A key part of the Treasury yield curve has finally inverted, setting off recession warning — here’s what investors need to know

What’s driving the market?

The inversion of the 2-year/10-year maturities in the yield curve can ring alarm bells given its record for preceding recessions, albeit with a lag. An inversion of the curve has preceded every recession since at least 1978, with just one false positive, according to an analysis by Baird. But the median length of time between an inversion and the onset of recession has been 18 months, according to Invesco’s Brian Levitt.

See: Stock-market investors brush off yield curve’s recession warning — for now. Here’s why.

In U.S. data, private payrolls rose by 455,000 in March, according to the ADP National Employment Report released Wednesday, and U.S. fourth-quarter gross domestic product was revised to 6.9% from 7% previously.

The Labor Department’s official take on March jobs is set for release Friday. Economists note that the ADP reading isn’t often a reliable month-to-month guide to the official data.

Kansas City Fed President Esther George is set to speak in the afternoon.

What analysts are saying?

“As has been the case throughout the bulk of March, a flattening curve to the point of inversion has dominated the macro narrative. 2s/10s inverted as far as -0.2 [basis points] — adding to our conviction that a durable trip below zero in this benchmark spread is a foregone conclusion,” wrote Ian Lyngen and Benjamin Jeffery, strategists at BMO Capital Markets, in a note.

“The rhetoric regarding ‘what it all means’ has intuitively picked up and while the correlation between 2s/10s and a looming recession doesn’t necessarily hold, there is little question that investors are favoring longer dated Treasurys over short dated paper as the Fed continues to signal 50 bp in May is the game plan — barring any unforeseen developments,” they wrote.

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