10, 30-year Treasury yields see biggest daily yield rise in over a week as investors weigh econmic data, $6 trillion budget proposal

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Long-dated U.S. Treasurys on Thursday sold off and yields saw the steepest daily climb in over a week, as economic reports on balance confirmed a healthy economic recovery from the COVID pandemic and as fixed-income analysts parsed the Biden administration’s plan to release a multitrillion-dollar fiscal year 2022 budget on Friday.

The data and news came ahead of a key measure for bond investors, the April personal consumption expenditure, due on Friday, and the May jobs report due the following Friday in a holiday-shortened Memorial Day week.

How Treasurys performed
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.602%
    was yielding 1.609%, up 3.7 basis points from Wednesday’s level at 3 p.m. Eastern Time.

  • The 30-year Treasury
    TMUBMUSD30Y,
    2.283%,
    known as the long bond, was yielding 2.289%, up 3.1 basis points.

  • The 2-year Treasury note
    TMUBMUSD10Y,
    1.602%
    rate, meanwhile, was at 0.145%, versus 0.147% a day ago.

The 10-year Treasury note saw its biggest yield climb since May 19, and the 30-year bond yield snapped a five-session skid with its largest daily climb since May 12, according to Dow Jones Market Data.

Fixed-income market drivers

After a steady two week buying stretch that had pushed yields down to around three-week lows, bonds yields are slowly edging back up, but trading within a relatively tight range.

U.S. government bond yields rose after a report showed those seeking first-time unemployment benefits sank 38,000 to 406,000 in the week ended May 22, the government said Thursday, marking the fewest number of requests for compensation since the onset of the pandemic nearly 15 months ago.

Separately, orders for durable goods orders slipped 1.3% last month for the first time in a year because of a semiconductor shortage. And an updated reading of gross domestic product in the year’s first three months, meanwhile, showed that the U.S. economy expanded at an annualized 6.4% pace, unrevised from the prior estimate released last month, according to the Commerce Department.

Market participants said that the report on the federal budget for the coming 2002 fiscal year, likely contributed the most to the jump in yields. The Wall Street Journal and New York Times reported that the Biden administration is laying out a $6 trillion budget plan, which would represent the highest sustained level of federal spending, including trillions in COVID aid, for the U.S. since World War II.

The Times said that the budget proposal includes plans for spending in education, transportation and addressing climate problems. The proposal means that more debt will likely be issued to help fund such an initiative, if passed, which would weigh on the U.S. Treasurys market.

Informing recent trade is the insistence of members of the Federal Reserve that they will focus on achieving maximum employment before withdrawing support from the market, including a $120 billion-a-month asset-purchase program.

On Thursday, Dallas Fed President Robert Kaplan in an interview with CNBC said that it would be “wise to start talking about moderating some of the asset purchases that [the Fed] put in place during the crisis.”

Market participants think Fed members may begin to signal more clearly that it is ready to scale back its market-supportive bond buying in August or September.

On Wednesday, Randal Quarles, the Fed’s vice chairman for supervision, said it would soon be time for Fed officials to begin debating slowing the central bank’s bond purchases, if the economy continues to improve at its current pace. Federal Reserve Vice Chair Richard Clarida also said on Tuesday that U.S. central bank officials may be able to begin discussing the appropriate timing of scaling back their bond-buying program at coming policy meetings,

Separately, a $62 billion auction of 7-year U.S. Treasury notes
TMUBMUSD10Y,
1.602%
went better than expected at 1.285%, with a stop through of 0.9 basis point. A stop-through indicates by how much the highest yield the Treasurys sold in the auction is below the highest yield expected when the auction began — the “when issued” level.

Fixed-income strategists noted that the Treasury yield curve, the differential between long-dated bonds and their short-dated counterparts, saw some steepening, with the so-called belly of the curve, representing midterm notes, falling while rates in the long-end of the curve rose.

What strategists said

“There’s a lot of debate on whether this inflation we see is going to be real,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.

“And I think there’s anticipation that the Fed is talking tapering early so they are mentioning it in some of their press conferences,” he said.  

The Seaport Global Securities managing director said that a lot of the early morning selling in Treasurys, pushing yields higher was related to Europe, occurring before the U.S. economic data releases.

10-year British government debt
TMBMKGB-10Y,
0.812%
was yielding 0.808%, versus 0.754% on Wednesday. The 10-year German bond
TMBMKDE-10Y,
-0.168%
was yielding -0.172% on Thursday, compared with -0.211%, in the prior session.

“Market participants have anticipated a rise of inflation well in advance of it actually occurring, and now that it’s here, some investors believe the Fed is allowing it to run too hot. The swift reopening of the economy has highlighted specific supply and demand dynamics that have led to unwanted upward consumer price pressures,” wrote Charlie Ripley, senior investment strategist for Allianz Investment Management, in a Thursday research report.

“Outside of the noise around the [April] employment report, the 10-year Treasury has remained stable throughout April, but this could change as taper talk starts to pick up and the economic recovery makes further progress.” the Allianz strategist wrote.



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