MW: Treasurys caught in ‘tug of war’ between oil, stocks
Treasury yields finished lower for the third consecutive day Monday, though the moves were muted as oil prices dropped and U.S. stocks rallied, creating a “tug of war” effect that kept government bond prices in check, one market strategist said.
The 10-year yield TMUBMUSD10Y, +0.60% finished unchanged at 2.197%. The yield on the two-year note TMUBMUSD02Y, -0.83% finished 0.4 basis point lower at 0.956%.
The 30-year yield TMUBMUSD02Y, -0.83% shed 1.9 basis points to 2.926%. Debt yields fall as prices rise.
Market strategists were surprised by the muted price action in Treasurys, saying that relatively low levels of liquidity heading into the end of the year typically amplify price movements.
“You have a bit of a tug of war between [falling] oil prices, which typically support the [Treasury] market, and higher equities which would take a bid away from the market. It is possible that those two opposing forces are what’s leaving the market relatively unchanged,” said Donald Ellenberger, senior portfolio manager and head of multisector strategies at Federated Investors.
Brent crude oil futures LCOG6, +0.19% posted their lowest close since 2004 while its U.S. counterpart, West Texas Intermediate, CLF6, -0.20% settled below $36 a barrel.
U.S. stocks closed higher Monday,while European shares SXXP, +0.19% closed lower.
Market participants anticipate muted trading activity this week as traders close out their positions heading into the new year. Wednesday’s reading on the core PCE price index for November will likely be the highlight of the week, data-wise, Ellenberger said. PCE is the Federal Reserve’s preferred measure of inflation
