Long-term US Treasury rates edged up on Tuesday, as appetite for bonds cooled even in a cycle of weaker-than-expected housing data, which undermined the positive tone of stocks.
How are treasury bills traded?
The 10-year treasury bill earns TMUBMUSD10Y,
rose to 1.641%, up 0.2 basis points from yesterday’s levels at 3 p.m. ET.
The 30-year Treasury bill TMUBMUSD30Y,
known as the long bond, returned 2.363%, up 1 basis point.
The 2-year Treasury bill TMUBMUSD02Y,
returned 0.151%, down 0.2 basis point.
Bond prices fall as yields rise and vice versa.
What drives the market?
Inflation bets have colored trading in the Treasury market as the United States’ passage into the recovery phase of the pandemic deepens.
Evidence of a better economy following the coronavirus outbreak that hit the country early last year has supported the idea that the Federal Reserve will raise benchmark interest rates by a range of 0% to 0.25% earlier than the Fed’s own projections for a move towards 2024.
Traders are positioning themselves for higher yields as bond prices fall, even though Tuesday’s moves in Treasuries looked relatively subdued.
However, housing data turned out to be weaker than expected, with a report of U.S. builders starting house construction at a seasonally adjusted annual rate of 1.57 million in April, down 9.5%. compared to the lowered figure of the previous month, the census. Said Bureau.
Licensing for new homes in April took place at a seasonally adjusted annual rate of 1.76 million, up 0.3% from March and 61% from a year ago.
Meanwhile, US Treasury data showed that foreign investors largely contained rate moves this spring, buying up a record amount of US government debt in March. Foreign investors bought $ 118.87 billion worth of treasury bills in March.
However, foreign holdings of treasury bills fell overall to $ 7,028 trillion in March, from $ 7,098 trillion in the previous month, the third consecutive monthly decline.
Larry Summers continued his criticism of the Fed’s easy political stance on Tuesday, saying, in remarks at an event hosted by the Atlanta Federal Reserve Board, that the central bank’s focus on healing the market from employment is shifted amid evidence of labor shortages. Summers is the former Secretary of the Treasury under Bill Clinton and Director of the National Economic Council under Barack Obama.
“I think the prospects of avoiding turbulence over the next few years, both in the real economy and in financial markets, would be significantly greater if there was a feeling that the monetary policy authorities in the United States focused on the need to avoid overheating rather than overheating. focused on the need to reassure people that they won’t focus on overheating, ”Summers said.
Investors will be eager to analyze the minutes of the Fed’s most recent policy meeting, which will be released at 2 p.m. ET on Wednesday.
What do bond strategists say?
“We share the Fed’s view that the current wave of inflation will be high in the near term but ultimately transient,” wrote Gautam Khanna, senior portfolio manager at Insight Investment, which oversees more than $ 1 trillion in active.
“It’s a function of base effects (the CPI figure is compared to a year ago – at the height of lockdowns), pent-up demand and supply chain friction,” Khanna writes. .
“But how long is transient? Asks portfolio manager Insight. “It could be anywhere from two months to 18,” the finance manager said, noting that the uncertainty over timing might not suit investors and could fuel episodes of volatility, providing opportunities “to buy. decreases ”.