A wave of sales in U.S. government bonds increased Thursday, boosting yields after new data indicated that the economic recovery had intensified and that a seven-year auction Treasury had low demand from investors.
The yield on the 10-year treasury note reached 1.539% and was recently 1.501% according to Tradeweb – compared to 1.388% at the end of Wednesday. Movements were also expressed in bonds with shorter dates, with the yield of five years at a stage 0.865%, compared to 0.612% on Wednesday.
Yields, which rise as bond prices fall, climbed after Labor Department data showed the number of jobless claims fell sharply last week, suggesting the labor market may stabilize after layoffs rose earlier in the winter.
Investors tend to sell Treasurys when they expect faster growth and inflation, which lowers the value of fixed-income bonds and could eventually push the Federal Reserve to short-term interest rates.
Yields rose later in the session after a $ 62 billion auction of seven-year Treasurys, which analysts say showed extremely weak investor interest.
“The interim area of the curve has undergone violent sales over the past two days, and auction results suggest no one has the guts to try to stop the tide,” Jefferies analysts said in a note after the auction. writing.
Thursday’s move extends the recent rise in government bond yields that is starting to attract the attention of investors in a variety of asset classes. Yields on the 10-year note, a raid on borrowing costs on everything from mortgages to corporate loans, rose within a few weeks to nearly 1.5% from around 1%, boosted by expectations that vaccines and the government’s stimulus efforts will accelerate . growth and inflation.
While Federal Reserve officials have said that returns to pre-pandemic levels are a return to normal and not problematic, some investors are worried that a rise in inflation could force the central bank to raise interest rates faster. than expected, says Gennadiy Goldberg, U.S. rates strategist at TD Securities.
“At the moment, it seems like no one really wants to buy the dip,” he said.
Fed Chairman Jerome Powell told lawmakers this week that although the economy has grown since the depths of the slowdown, the central bank intends to maintain its easy monetary policy until “significant further progress is made” in that direction. of its employment and inflation targets. The central bank has lowered interest rates to near zero and committed to buying billions of dollars worth of bonds to keep US borrowing costs lower and help the recovery.
Analysts’ comments from Fed officials that they are not worried about rising yields have increased selling pressure in the bond market. For much of last year, investors expressed confidence that the Fed – to support the economy – would prevent returns from rising much higher than 1% by increasing the amount of long-term treasury they buy each month. But confidence has since evaporated, removing a major constraint on rising returns.
Investors are “pleading for it,” said Jim Vogel, FHN Financial’s interest rate strategist, referring to the Fed’s lack of interest in buying more long-term treasury.
If yields continue to rise, it could push up stocks and increase borrowing costs for companies and consumers, which some say could fuel further volatility.
“As rates rise, many of the products that Treasurys uses as their benchmark also tend to rise, and this provides natural hedging needs for investors,” he said. Goldberg said.
Write to Sebastian Pellejero at [email protected] and Sam Goldfarb at [email protected]
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