Treasury Yields Resume Climb After Auctions Stir Supply Anxiety
Monday, Oct 28, 2024 2:47 pm ET
1min read The yield on the 10-year U.S. Treasury continued its ascent on Monday, after hitting a three-month high last week. The 10-year Treasury yield rose 2 basis points to 4.252%, while the 2-year Treasury added 1 basis point to 4.108%. Yields move inversely to prices, and one basis point equals 0.01%.
The yield on the 10-year Treasury hit a three-month high on Wednesday, topping 4.25%, before dipping slightly to close out the week. Monday is light on the data front, but traders are looking ahead this week to fresh jobs figures and consumer confidence data in the lead up to the U.S. presidential election on Nov. 5. Investors will also continue to digest a slew of central bank commentary following last week's IMF meetings in Washington, D.C., with Federal Reserve policymakers now in a blackout period which prevents commentary ahead of next week's interest rate decision.
The recent increase in Treasury yields can be attributed to several factors. The producer price index (PPI) rose 0.3% in January, above the 0.1% forecast from economists surveyed by Dow Jones. Excluding volatile food and energy prices, the so-called core PPI added 0.5%, also exceeding expectations for a 0.1% gain. This indicates that inflationary pressures may be building, which could lead to higher interest rates.
Additionally, the Federal Reserve's holdings of U.S. Treasury securities have increased significantly since March 2020. As of the end of July 2020, the Federal Reserve held 28% of outstanding U.S. Treasury notes and bonds, the highest since 2003, compared with 11% in March 2009. This increased demand for Treasury securities has put upward pressure on yields.
Market participants, such as primary dealers and indirect bidders, have adapted their bidding strategies in response to increased auction sizes and longer tenors. The U.S. Treasury has increased auction sizes across all nominal coupon tenors over the August-October quarter, with larger increases in longer tenors (7-year, 10-year, 20-year, and 30-year). This increased supply of long-dated Treasury securities has led to a decrease in demand, putting downward pressure on prices and upward pressure on yields.
In conclusion, the recent increase in Treasury yields can be attributed to a combination of factors, including inflationary pressures, increased demand from the Federal Reserve, and increased supply from the U.S. Treasury. As investors continue to digest economic data and central bank commentary, Treasury yields are expected to remain volatile in the coming weeks.
The yield on the 10-year Treasury hit a three-month high on Wednesday, topping 4.25%, before dipping slightly to close out the week. Monday is light on the data front, but traders are looking ahead this week to fresh jobs figures and consumer confidence data in the lead up to the U.S. presidential election on Nov. 5. Investors will also continue to digest a slew of central bank commentary following last week's IMF meetings in Washington, D.C., with Federal Reserve policymakers now in a blackout period which prevents commentary ahead of next week's interest rate decision.
The recent increase in Treasury yields can be attributed to several factors. The producer price index (PPI) rose 0.3% in January, above the 0.1% forecast from economists surveyed by Dow Jones. Excluding volatile food and energy prices, the so-called core PPI added 0.5%, also exceeding expectations for a 0.1% gain. This indicates that inflationary pressures may be building, which could lead to higher interest rates.
Additionally, the Federal Reserve's holdings of U.S. Treasury securities have increased significantly since March 2020. As of the end of July 2020, the Federal Reserve held 28% of outstanding U.S. Treasury notes and bonds, the highest since 2003, compared with 11% in March 2009. This increased demand for Treasury securities has put upward pressure on yields.
Market participants, such as primary dealers and indirect bidders, have adapted their bidding strategies in response to increased auction sizes and longer tenors. The U.S. Treasury has increased auction sizes across all nominal coupon tenors over the August-October quarter, with larger increases in longer tenors (7-year, 10-year, 20-year, and 30-year). This increased supply of long-dated Treasury securities has led to a decrease in demand, putting downward pressure on prices and upward pressure on yields.
In conclusion, the recent increase in Treasury yields can be attributed to a combination of factors, including inflationary pressures, increased demand from the Federal Reserve, and increased supply from the U.S. Treasury. As investors continue to digest economic data and central bank commentary, Treasury yields are expected to remain volatile in the coming weeks.
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