Treasury yields continue descent ahead of Fed minutes

NEW YORK: US Treasury yields continued their recent falls on Wednesday, with 10-year yields on track for a seventh straight session of declines on concerns the economic recovery may have peaked as investors awaited clues on the Federal Reserve's policy path.

The daily streak of declines for the 10-year note marks the longest since a nine-session drop that ended on March 3, 2020, as the COVID-19 pandemic in the US was gaining speed.

Recent data on the labor market and services sector has given investors pause that the economy may not be strengthening as anticipated and some underlying weakness may be emerging.

On Wednesday, the Labor Department said job openings moved higher in May while hiring dipped, indicting the economy continues to struggle with labor shortages.

Yields tumble as market prepares for US jobs data

"Expectations for growth, for employment and for inflation were all really, really optimistic and now, for whatever reason, there seems to be this reckoning that expectations were a little bit too high, especially on the labor market front," said Tom Simons, money market economist at Jefferies in New York.

"There's this expectation that maybe we've already seen the best part of the recovery and that the rest of this is going to be a slow grind as businesses try to figure out how to do more with less in terms of people, how to become more productive."

Analysts also pointed to volatility in the oil market, where crude had run up in price until faltering on Tuesday after OPEC producers canceled a meeting and worries about the spread of the Delta variant of the coronavirus as contributing to the risk-off environment, while technical support levels on the 10-year being broken on Tuesday were also cited for the decline.

The yield on 10-year Treasury notes was down 6.2 basis points to 1.308%.

Investors will eye the release of minutes from the Fed's June 15-16 meeting later in the session, when officials opened debate on how to end crisis-era bond-buying and signaled interest rate increases were closer on the horizon than previously thought.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 108.600 basis points after flattening to as small as 107.3, the narrowest since Feb 12.

Market players said the 10-year yield's breach below 1.40% had been crucial in attracting more bond buyers as that was the level where many had hedged their "reflation" bets.

The yield on the 30-year Treasury bond was down 7.5 basis points to 1.928% after falling to a low of 1.918%, its lowest since Feb. 11.