The treasure ghost auction haunts the bond market by the sea

Photographer: Samuel Corum / Bloomberg

A battered Treasury bond market faces another difficult week as it will have to absorb a a huge list of auctions focused on maturities that have been hurt amid a better outlook for growth and inflation.

It’s been a month since The disastrous seven-year auction led the bond market to a fall that reverberated in the financial markets and helped put benchmark yields on the way to pre-pandemic levels. Now that due date is on the calendar again, with a $ 62 billion offer appearing as a source of anxiety for resellers next week.

The government will be selling in a market that has gone through a painful period, generating a longer term index at a bear market. An important part of the yield curve reached its highest point in more than five years after the Federal Reserve reaffirmed plans to keep rates close to zero until 2023. The seven-year area, especially vulnerable to changes in monetary policy speculation, suffered a beating, as investors bet the central bank will not be able to wait that long . Its performance around earnings is worse since 2015.

“Supply will be a very important part of next week,” said Justin Lederer, strategist at Cantor Fitzgerald. “We’ll really see what kind of end-user demand comes up at these auctions, and whether the past seven-year month was so badly sponsored because of that day’s volatility or whether it’s an ongoing topic. There is a lot of volatility now and doubts about whether higher rates will impact stocks ”.

In February, when investors were already withdrawing from the bonds amid stimulus talks and the launch of the vaccine, the government received record demand for the seven-year auction. The added result fueled a liquidation of Treasury bills that spanned the seventh consecutive week.

The auction screen highlights another concern. Mainly treasury bonds rejected the Fed’s decision on Friday to let the regulatory exemptions of banks that have boosted the bond market since the beginning of the pandemic lapse. But resellers have been unloading Treasury bills and, for some analysts, the Fed’s move may add to the stress around auctions.

Long-term pain

The fall in fixed income affected the longer maturity terms more strongly. On Thursday, a Bloomberg Barclays US Treasury index that tracks debt 10 years or older to maturity fell about 22% from its March 2020 peak, placing it in bearish territory – at least for this one. indicator. The 10-year yield reached 1.75% this week, the highest since January 2020.

The bullish treasure market that started in 1981 is finally over

Yields and inflation expectations also skyrocketed after Fed Chairman Jerome Powell backed off on any need to fight the increase. A market proxy for inflation over the next decade has risen to about 2.3% this week, the highest since 2013.

Powell reiterated this week that he would only see a problem with the sale of securities if it was accompanied by “disorderly conditions in the markets or by persistent tightening of financial conditions that threaten the achievement of our goals”. Technology stocks appeared to have suffered a few points in the past week, as yields soared.

This leaves traders monitoring a series of Fed speakers ahead, especially Powell, in search of new insights. A continued message of patience about tightening rates could cause some to step out of the bets that increases could come before Fed projects.