The sell-off of US Treasuries intensified on Thursday, sending yields skyrocketing after new data pointed to a stronger economic recovery and a seven-year Treasury auction answered lukewarm investor demand.
The yield on the benchmark 10-year Treasury bill hit a whopping 1.539%, according to Tradeweb, and was recently 1.501%, up from 1.388% by Wednesday’s close. There were also moves in shorter bonds, with the five-year yield at one point at 0.865%, up from 0.612% Wednesday.
Yields, which rise when bond prices fall, have risen after Labor Department data showed that jobless claims fell sharply last week, indicating that the labor market could stabilize after layoffs rose earlier in winter.
Investors tend to sell government bonds when they expect faster growth and inflation, which lowers the value of bond fixed payments and could eventually cause the Federal Reserve to raise short-term interest rates.
Revenues rose later in the session following a $ 62 billion seven-year treasury auction, which analysts said showed extremely weak investor interest.
“The intermediate part of the curve has undergone a really violent sell-off in the past 2 days and the auction results suggest no one has the courage to try to turn the tide,” Jefferies analysts wrote in a post-auction note.
Thursday’s move extends a recent hike in government bond yields that is beginning to attract investors’ attention across a range of asset classes. The yield on the 10-year note, a bell for borrowing costs for everything from mortgages to corporate loans, has risen from about 1% to nearly 1.5% in a matter of weeks, boosted by increased expectations that vaccines and incentives from the government will accelerate growth and inflation.
While Federal Reserve officials have said the rise in yields to pre-pandemic levels marks a return to normalcy and is unproblematic, some investors are concerned that rising inflation could force the central bank to cut interest rates faster than expected. increase, said Gennadiy Goldberg. American price strategist at TD Securities.
“Right now, it seems like no one really wants to buy the dip,” he said.
Fed Chairman Jerome Powell told lawmakers this week that while the economy has picked up from the bottom of the slowdown, the central bank plans to maintain its easy-money policy until “substantial further progress is made” towards its employment and inflation targets. The central bank cut interest rates close to zero and pledged to buy billions of dollars in bonds to keep US borrowing costs down and aid the recovery.
Comments from Fed officials that they are not concerned about rising yields have only added to the selling pressure in the bond market, analysts said. For much of the past year, investors expressed confidence that in order to support the economy, the Fed would prevent interest rates from rising much higher than 1% by increasing the number of long-term government bonds they buy each month. But that confidence has since evaporated, removing a major constraint on rising interest rates.
Investors are “pouting about it a bit,” said Jim Vogel, interest rate strategist at FHN Financial, referring to the Fed’s lack of interest in buying more treasury bonds over the longer term.
If yields continue to rise, it could put pressure on stocks and increase borrowing costs for businesses and consumers, which some believe could lead to further volatility.
“As interest rates rise, many of the products that Treasurys used as a benchmark are also increasing, leading to natural hedging needs for investors,” said Mr. Goldberg.
Write to Sebastian Pellejero at [email protected] and Sam Goldfarb at [email protected]
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8