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Bond Report: 10-year Treasury yield finishes New York session below 3.8% amid global growth concerns

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Bond yields fell on Tuesday, sending the benchmark 10-year rate below 3.8%, as traders worried that COVID-19 restrictions in China may further damage global economic growth.

What’s happening

The yield on the 2-year Treasury
TMUBMUSD02Y,
4.525%

slipped less than 1 basis point to 4.517% after factoring in new issue levels. Yields move in the opposite direction to prices.

The yield on the 10-year Treasury
TMUBMUSD10Y,
3.757%

declined 6.8 basis points to 3.757% from 3.825% on Monday afternoon.

The yield on the 30-year Treasury
TMUBMUSD30Y,
3.829%

fell 7.8 basis points to 3.827% from 3.905% as of late Monday.

What’s driving markets

Treasury yields slipped on Tuesday as additional COVID-19 lockdowns in China seemed to increase the chances of a global economic slowdown. Market sentiment was described by analysts as fragile, given the uncertainty over whether China would make a U-turn on its reopening plans.

Read: China announces first COVID deaths in months and unveils restrictions in Beijing and Guangzhou

The spread between 2- and 10-year Treasury yields ended the New York session at minus 76 basis points, its most inverted level since Oct. 5, 1981, and a sign that some say points to an inevitable recession.

There are no major U.S. economic releases on Tuesday, though an onslaught of data that includes weekly jobless claims is set for Wednesday.

Markets are pricing in a 76% probability that the Fed will raise interest rates by 50 basis points to a range of 4.25% to 4.50% on Dec. 14, according to the CME FedWatch tool. The central bank is mostly expected to take its fed-funds rate target to at least 4.75% to 5% by March.Stock Market Today: Live coverage of Tuesday’s market action

What analysts are saying

“In terms of what’s coming out of China, there are growing concerns among investors that there’ll be a return to lockdowns following the weekend news that they’d had their first Covid death in six months,” said a team at Deutsche Bank. The latest developments have “all served to dampen the speculation of recent weeks that China might be moving gradually away from its zero-Covid strategy.”

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