US 10-year Treasury yields pull back from earlier session highs, remain supported above 1.60% for now

• US 10-year Treasury yields have pared earlier gains to trade a tad lower, but still above 1.60%.
• Strong US data and hawkish Fed commentary helped to boost yields earlier in the session.

US 10-year Treasury yields continue to consolidate slightly to the north of the 1.60% level, where they trade modestly lower by about 1bps on the session. Last week’s high at 1.60% is offering support for now. The 30-year yield is down by a similar very modest margin to just below 2.0%. Short-end yields are flat with the 2-year just below 0.52%.

Yields have pulled back from earlier session highs when the 2-year hit 0.54% and the 10-year hit three-week highs just under 1.64%. A much stronger than expected US Retail Sales report for October, as well as hawkish commentary from St Louis Fed President and 2022 FOMC voter James Bullard, had pushed yields higher earlier in the session. For reference, headline retail sales rose 1.7% MoM versus forecasts for a 1.2% rise and Bullard suggested the Fed accelerate the pace of QE taper to $30B per month to pave the way for a Q1 2022 rate hike.

Though the earlier upside has now mostly been given back, it would seem that risks are pointed towards higher US yields right now. Last week’s much hotter than expected US inflation data has put pressure on the Fed to turn more hawkish, while other US data has also been surprising to the upside. The NY Fed Manufacturing survey for November that was released on Monday was much stronger than expected and pointed at a further acceleration in US growth this month. The data sent yields higher at the time. Analysts do note that one key downside risk for bond yields if it ends up triggering a broad demand for safe-haven assets, could be a resurgence in Covid-19 infections in the US this coming winter.

Looking ahead, bond traders will be keeping an eye on further Fedspeak, with FOMC members Raphael Bostic and Thomas Barkin slated to speak at 1700GMT, followed by FOMC member Mary Daly at 2030GMT. For the rest of the week, bond markets will remain focused on Fed speak, US data and a $23B 20-year bonds auction on Wednesday. Note that last week’s $25B 30-year bond auction was poor.