Government bond yields could hit their highest levels since January 2020, as the Treasury this week begins auctioning a record amount of supply.
“Given the economic climate, I think these auctions will prove to be more dynamic than usual,” said Antoine Bouvet, senior rate strategist at ING, in an interview.
Bouvet said the scheduled Treasury auctions, which will start April 12, will likely push the benchmark 10-year bond yield to close at 1.75% or higher this week, from its recent low of 0.52% August 4 and potentially its highest. has closed since Jan. 22, 2020. In an April 9 memo, David Kostin, chief US equity strategist at Goldman Sachs, said he expects the 10-year yield to climb to 1.8% in the month. first quarter 2021, then 1.9% later. during this year.
The 10-year yield was trading just above 1.67% at the start of April 12, essentially flat since the April 9 close.
In April, the Treasury plans to auction a record $ 373 billion in securities, including $ 58 billion in 3-year notes, $ 38 billion in 10-year bonds and $ 24 billion in bonds. at age 30 this week alone, according to estimates from TD Securities. The record will be short lived as $ 395 billion in securities will be auctioned in May, according to estimates by TD Securities.
The Treasury sells securities, such as notes and bonds, to finance public debt. With a dramatic increase in public spending in response to the coronavirus pandemic, these auctions have also increased in size.
“The huge amount of bonds will definitely test the limits of demand,” said Tom Essaye, trader and founder of financial research firm The Sevens Report, in an interview. “And that’s one of the forces driving yields higher – there are so many bonds that need to be sold in the years to come. Ultimately, the sheer amount of supply is one factor worrying markets about a potentially messy rise in yields. “
In February, yields soared after a 7-year ticket auction sparked lukewarm demand.
“Considering what happened in February … the markets are understandably a little nervous that we are getting a low turnout in these auctions. [this week] this could trigger a resumption in sales of US Treasuries and raise yields further from where we are, ”said Derek Halpenny, research manager for EMEA global markets and international securities at MUFG.
Halpenny said that in addition to the auction, the Consumer Price Index for March will be released on April 13 with expectations that the latest inflation data could push bond yields further up.