Bloomberg
Treasury yields jump after the key level to 1.64%, the highest in a year
(Bloomberg) – Treasury bills fell again on Friday, sending the 10-year benchmark yield beyond the 1.6% mark observed closely to its highest level in more than a year. Expectations for inflation over the next decade have swung to a seven-year high. Yields in the US benchmark rose by 10 basis points to reach 1.637% in US morning trades, a level never seen since February 2020. Rates jumped between notes and bonds, with the biggest movements in 10 and 20 bonds years, sloping the so-called yield curve. The 10-year rate has failed to close above 1.60% since the beginning of 2020, although it has exceeded that level in volatile intraday trading several times in recent weeks. “From a macro perspective, around the 1.60% level is when stocks start to get expensive in relation to rates on a risk premium basis,” said Mohit Kumar, managing director at Jefferies International. The 10-year banknote equilibrium rate, a measure of market expectations for annual consumer price gains based on the difference in yield for inflation-linked debt, reached 2.30% at the beginning of the New York trading session on Friday. fair, a level that has not broken since the beginning of 2014. An equivalent measure for the five-year note has reached its strongest level since 2008. The movement in global debt started in Australia, where future bonds fell in the market is close to put modest pressure on Treasury bills. At about the same time, there was a block sale of 10-year ultra bond futures, followed by a disadvantaged put option buyer – whose coverage tends to weigh on the market. The three combined to topple 10-year Treasury futures during Thursday’s session, which sparked a wave of sales. About 20,000 contracts changed hands in the next five minutes, the biggest activity of the day up to that point. The speed and severity of the move left many traders perplexed, with the spot market volumes comparatively modest. The movements there were more pronounced in some of the longer-term securities, with the yield curve sloping as two-year rates rose less than two basis points. The short end of the dollar financing markets has remained relatively anchored lately with a flood of dollars and supply and demand imbalances in various money markets exerting downward pressure on rates and even driving repo levels below zero. it has now surpassed the levels seen after the disastrous seven-year US bond auction on February 25. Markets were looking for a calm after the relatively monotonous move from this week’s debt auctions, with a focus on switching to the Federal Reserve’s policy decision on March 17. Still, some point to key factors shown in this week’s sales as the reason for more sales. The indirect offer for the 10-year sale, a proxy for international participation that includes foreign central banks, was the lowest since August. “I was surprised to hear optimistic comments about US Treasury auctions, because for me they showed a clear bearish pattern,” said Althea Spinozzi, strategist at Saxo Bank A / S, who sees this week as a consolidation before the liquidation be resumed. “They failed to show strong demand from foreign investors, leaving Treasury bills subject to volatility as we move into FOMC week, where a 20-year sale and a 10-year TIPS auction will also test the market. ” The Federal Open The Market Committee meeting next week is expected to be the next big focus for traders. In comments last week, Fed Chairman Jerome Powell noted the recent change in bond yields, but said little to indicate that officials are willing to react against this at this stage. “The bond market is looking for a new balance in light of a broadly improved economic outlook in the United States and elsewhere,” said Kit Juckes, chief exchange strategist at Societe Generale SA. “There will be no peace before we get US 10s at 2%.” (Updates everywhere.) For more articles like this, visit us at bloomberg.comSubscribe now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP