A wave of US government bond sales intensified on Thursday, raising yields after new data indicated a strengthening economic recovery and a seven-year Treasury bond auction met the lukewarm demand from investors.
The yield on the 10-year reference Treasury note reached 1.539% and was recently 1.501%, according to Tradeweb – up from 1.388% at the close of Wednesday. The movements were also pronounced in shorter-term securities, with the five-year yield at one point reaching 0.865%, compared to 0.612% on Wednesday.
Yields, which rise when bond prices fall, soared after Labor Department data showed that the number of jobless claims fell dramatically last week, signaling that the job market may be stabilizing after layoffs. increased in early winter.
Investors tend to sell Treasury bills when they expect faster growth and inflation, which reduces the value of fixed bond payments and could lead the Federal Reserve to raise short-term interest rates.
Yields skyrocketed at the end of the session after an auction of $ 62 billion of seven-year Treasury bonds, which analysts said showed extremely weak investor interest.
“The middle area of the curve has suffered a truly violent sale in the past 2 days and the auction results suggest that no one has the stomach to try to turn the tide,” Jefferies analysts wrote in a note after the auction.
Thursday’s ruling extends a recent spike in government bond yields, which has begun to attract investors’ attention across a range of asset classes. The yield on the 10-year note, a thermometer for borrowing costs on everything from mortgages to corporate loans, jumped from about 1% to about 1.5% in a matter of weeks, lifted by rising expectations that vaccines and government stimulus efforts will accelerate growth and inflation.
Although Federal Reserve officials have said that rising yields toward pre-pandemic levels mark a return to normal and are not problematic, some investors are concerned that an acceleration of inflation may force the central bank to raise interest rates more faster than expected, said Gennadiy Goldberg. US rate strategist at TD Securities.
“At the moment, it looks like no one really wants to buy the dive,” he said.
Fed Chairman Jerome Powell told lawmakers this week that while the economy has recovered from the depths of the slowdown, the central bank intends to maintain its easy money policies until “substantial progress has been made” toward its employment and inflation targets. The central bank cut interest rates to almost zero and pledged to buy billions of dollars in bonds to keep US borrowing costs low and help the recovery.
Comments by Fed officials that they are not concerned about rising yields have only increased selling pressure in the bond market, analysts said. For much of last year, investors expressed confidence that the Fed – to support the economy – would prevent yields from rising much more than 1%, increasing the amount of long-term Treasury bills they buy each month. But that confidence has evaporated, removing an important restriction on rising incomes.
Investors “are frowning,” said Jim Vogel, interest rate strategist at FHN Financial, referring to the Fed’s lack of interest in buying longer-term Treasury bills.
If yields continue to rise, this could put pressure on stocks and increase borrowing costs for businesses and consumers, which some fear may increase volatility.
“As rates rise, many of the products that used Treasury bills as a benchmark tend to rise as well, and that produces natural hedge needs for investors,” said Goldberg.
Write to Sebastian Pellejero at [email protected] and Sam Goldfarb at [email protected]
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