A wave of US government bond sales intensified Thursday, sending yields soaring after new data indicated a strengthened economic recovery and a seven-year Treasury auction met tepid demand. of investors.
The yield on the benchmark 10-year Treasury bond peaked at 1.539% and was recently 1.501%, according to Tradeweb, down from 1.388% at Wednesday’s close. The moves were also pronounced in shorter-term bonds, with the five-year yield at one point hitting 0.865%, down from 0.612% on Wednesday.
Yields, which rise when bond prices fall, rose after Labor Department data showed the number of jobless claims fell sharply last week, indicating that the job market could stabilize after the layoffs increased in early winter.
Investors tend to sell Treasuries when they expect faster growth and inflation, which lowers the value of the fixed payments on the bonds and may eventually lead the Federal Reserve to raise short-term interest rates.
Yields spiked later in the session following an auction of $ 62 billion of seven-year Treasuries that analysts said showed extremely weak interest from investors.
“The middle area of the curve has seen a truly violent sell-off in the last 2 days and the auction results suggest that no one has the courage to try to change course,” Jefferies analysts wrote in a note after the auction.
Thursday’s move extends a recent spike in government bond yields that has begun to grab investors’ attention across a variety of asset classes. The yield on the 10-year note, a benchmark for borrowing costs on everything from mortgages to corporate loans, has risen to close to 1.5% from around 1% in a matter of weeks, driven by rising expectations. that vaccines and government stimulus efforts will accelerate. growth and inflation.
While Federal Reserve officials have said that rising yields toward pre-pandemic levels marks a return to normalcy and is not problematic, some investors are concerned that a spike in inflation could force the central bank to raise rates. interest faster than expected, Gennadiy Goldberg said. TD Securities US Rate Strategist.
“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 recovered from the depths of the slowdown, the central bank intends to maintain its easy money policies until “it has been achieved. substantial additional progress “toward its employment and inflation targets. The central bank cut interest rates to near zero and has pledged to buy billions of dollars in bonds to keep US borrowing costs low 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 the Fed, to support the economy, would prevent yields from rising much more than 1% by increasing the number of long-term Treasuries they buy each month. But that confidence has since evaporated, removing a key constraint on rising returns.
Investors “are pouting about it,” said Jim Vogel, interest rate strategist at FHN Financial, referring to the Fed’s lack of interest in buying more long-term Treasuries.
If returns continue to rise, that could put pressure on stocks and increase borrowing costs for businesses and consumers, which some worry it could fuel further volatility.
“As rates go up, many of the products that used Treasuries as a benchmark tend to go up as well, and that creates natural hedging needs for investors,” Goldberg said.
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