Ghost of Horrific Treasury Auction Haunts Bond Market on Brink

Photographer: Samuel Corum / Bloomberg

An abusive market for the treasury is facing another difficult week as it a massive number of auctions focused on the expiration dates that have risen amid a brightening outlook for growth and inflation.

It’s been a month since a a disastrous seven-year auction turned the bond market around to a large extent, reverberating across the financial markets and helping to place standard returns on the road to prepandemic highs. Now the maturity is back on the calendar, with an offer of $ 62 billion that is a source of concern for traders in the coming week.

The government will sell in a market that is enduring a painful time and will get an index of longer maturity in a bear market. A significant part of the rate of return achieved the strongest in five years after the Federal Reserve reaffirms plans to keep interest rates close to zero until 2023. The seven-year area, particularly vulnerable to the shift in monetary policy speculation, has been hit as traders bet the central bank will not be able to wait that long. It has been performing the most since the 2015 due date.

“The offer is going to be a very important part of next week,” said Justin Lederer, a strategist at Cantor Fitzgerald. ‘We’ll really see what kind of demand for end users appears at these auctions, and whether the seven years last month were so poorly sponsored due to the volatility of that day or whether it’s an ongoing theme. There is now just a lot of volatility and questions about whether higher rates are going to affect stocks. ”

In February, when investors had already stepped back from bonds amid stimulus talks and vaccination of vaccines, the government received it record low demand after the seven-year auction. The result added to a sale in Treasury that extended to a seventh consecutive week.

The auction leads to another case. Taxes mostly has repealed the Fed’s decision to release bank regulations that have driven the bond market since the start of the pandemic. But traders were downloading treasury, and for some analysts, the Fed’s move could increase the risk of increasing auctions.

Pain with long maturity

The slump in fixed income has hit longer-term hardest. As of Thursday, a U.S. Treasury index of Bloomberg Barclays that tracks debt ten years or longer to maturity was about 22% lower than the peak in March 2020, which puts it on a cattle field – at least by this measure . The yield for ten years reached 1.75% this week, the highest since January 2020.

Treasury bull market that started in 1981 has finally ended

Yields and inflation expectations also fled after Fed Chairman Jerome Powell pushed back any need to curb the rise. Market power for inflation over the next decade rose to around 2.3% this week, the highest since 2013.

Powell reiterated this week that it will see a problem with the sale of the mortgage if it is accompanied by ‘disorderly conditions in markets or by the persistent tightening of financial conditions that threaten the achievement of our goals.’ Technical stocks have apparently suffered below points over the past week as yields have extended their climb.

This leaves traders watching a whole host of Fed speakers ahead, most notably Powell, for new insights. An ongoing message of patience over the tightening of tariffs may abandon some to leave bets that increases may come sooner than the Fed projects.