US Treasury yields drop to early 2021 levels during three-day downtrend

US Treasury bond yields remain pressured for the third consecutive day amid Monday’s Asian session. In doing so, the risk gauge tracks the US inflation expectations while also justifying the fears over the US Federal Reserve’s (Fed) hawkish mood, conveyed during the last week.

The US 10-year Treasury yield drops three basis points (bps) to 1.42%, the lowest since March 03 whereas the 30-year bond yield extends the previous two-day south-run to the mid-February lows surrounding 2.0%. On the same line, the US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, drop to the lowest since early March levels, around 2.24% by the press time.

Behind the moves could be the escalating chatters over the Fed’s rate hike and uncertainty concerning US President Joe Biden’s infrastructure relief package. Having heard the upward revision of the Fed’s economic forecasts and increasing support for two rate hikes in 2023, St. Louis Fed President James Bullard forecasts Core PCE at 3.0% for 2021 and 2.5% for 2022 while backing the tapering to start in next year.

Its’ worth noting that Reuters came out with the weekend update over infrastructure spending talks in the US Senate while signaling that the plan, “has been gaining support in the U.S. Senate, but disputes continued on Sunday over how it should be funded.” Elsewhere, fears of the Delta variant of the covid and Brexit also weigh on the market sentiment.

Amid these plays, Nikkei drops the most since early May to lead Asian markets towards the south whereas the S&P 500 Futures print 0.20% intraday losses by the press time.

Given the lack of major data/events, the risk appetite is likely to remain sour ahead of the US session when the Chicago Fed activity data and Fedspeak may offer fresh direction to the market.

Read: Post-Fed Markets: What to expect next?