US 10-year Treasury yield pulls back below 1.60% after earlier hitting three week highs at 1.65%

• US 10-year yields pulled back under 1.60% after hitting three-week highs at 1.65% earlier in the session.
• Investors may have to wait until Thanksgiving for a decision on the Fed chair to be announced.

US 10-year treasury yields pulled back from the three-week highs at 1.65% that it printed earlier in the session on Wednesday, eventually falling back below 1.60% for an on-the-day drop of about 3.5bps. Yields were down across the curve, though the decline was most pronounced in the belly. 2s fell 2bps to 0.50%, 5s fell 3.5bps to 1.23%, 7s fell 4bps to under 1.48% and 30s fell 2.5bps to back under 2.0%.

There was no one specific catalyst for the decline. Bond prices have been hit hard in recent sessions by positive US data surprises and seemingly took the opportunity on Wednesday amid the lack of tier one US data to recover some recently lost ground. As bond prices rise, yields fall. US housing data on Wednesday was mixed and did shift thinking on the current state of the US economy or the Fed policy debate. According to the White House, investors may have to wait until Thanksgiving (25 November) before a decision on the Fed chair nomination is announced.

Yields saw short-lived pop higher midway through the session in wake of a $23B 20-year bond auction at 1800GMT. The bonds sold at a high yield of 2.065%, 1.4bps above the When Issued (i.e. the 20-year yield prior to the start of the auction). That compares to a six-auction average tail of 0.5bps, which some traders took as a sign of weaker demand for the 20-year bond. 20-year yields continue to trade higher than 30-year yields. According to Reuters, the 20-year bond is suffering from relatively less demand than for other maturities since its reintroduction back in May 2020.

5-year break-even inflation expectations, calculated by subtracting the 5-year real yield from the 5-year nominal yield, fell on Wednesday. Having been as high as 3.31% on Tuesday, they currently trade at 3.24%. That’s because 5-year TIPS yields were unable to match the rally seen in nominal 5-year yields, instead trading within a -1.90-95% range and set to end the session flat.