US Treasury yields rise sharply

Yields, which rise when bond prices fall, have steadily increased overnight, despite no obvious catalyst, leaving analysts looking for explanations.

In notes to clients, some said that President Biden’s prime-time speech on Thursday night may have made investors more optimistic about the economic outlook. In the speech, Biden instructed states to make all adult Americans eligible to receive the vaccine by May 1 and said that families and friends could probably gather in small groups to celebrate Independence Day.

Some analysts also attributed the move, at least in part, to “supply indigestion” after the US Treasury sold $ 120 billion in three-year notes, 10-year notes and 30-year bonds in the previous three days. While demand for these auctions has been reasonably strong, large auctions can sometimes cause tremors if investors are satisfied with what they have just bought in sales and are hesitant to buy more.

Yields began to rise sharply a month ago, after the same series of auctions, raising concerns that a flood of new debt could exacerbate the pressure on the market caused by expectations of a strong economic recovery and possible increases in interest rates. Federal Reserve. Some traders say the market may also be more vulnerable on Fridays, with investors nervous about buying Treasury bonds before the weekend.

With yields rising on Friday, traders were looking to see if 10-year yields would rise above 1.626%, their recent intraday high established a week earlier. It broke through this level in the middle of the morning, leading to a brief spurt in more sales.

Investors pay close attention to the US Treasury’s long-term yields because they play a large role in determining the cost of borrowing across the economy. Many investors also use the 10-year Treasury yield as a discount rate on formulas to value stocks – making rising yields a special threat to tech companies that are expected to earn a greater proportion of their profits in the future.

Investors are also evaluating whether the weakness of Treasury bills will spread to the corporate bond market. While yields on investment-grade corporate bonds generally increase along with those on Treasury bonds, many consider it a bigger problem if the gap between the two widens, causing a bigger jump in borrowing costs.

As it stands, borrowing costs remain very low for most companies, although the average extra yield required by investors to hold corporate bonds instead of Treasury bills has risen in recent weeks.

The attractive loan market was highlighted on Thursday, when Verizon Communications Inc.

sold $ 25 billion in bonds, tied for the sixth largest sale of corporate bonds ever recorded, to help finance its recent spectrum purchases.

From March 1 through Thursday, non-financial companies issued $ 81 billion in investment-grade bonds, compared with $ 38 billion in the previous two weeks, according to Dealogic.

Write to Sam Goldfarb at [email protected]