• February 4, 2023

U.S. government bonds just staged epic yield climbs.What’s next?

US Treasury bond yields saw interest rates rise steadily on Thursday, putting the sovereign debt on track to mark its biggest weekly move in yields in months, and in some cases years.

What are treasuries doing?

The yield on 10 year treasury bills
TMUBMUSD10Y, 1.473%
rose 12.5 basis points to a 52-week high of 1.513% based on an east close at 3:00 p.m., the biggest jump in yield since November 9th. The 10-year race briefly reached an intraday high of 1.539%.

The 30 year bond yieldBX: TMUBMUSD30Y gained 6.1 basis points to 2.303% to hit its own 52-week high for six consecutive profit days.

Meanwhile the 2-year grade
TMUBMUSD02Y, 0.144%
The 4.1 basis point increase to 0.166% was the strongest one-day increase since April 6, 2020. Short-term debt has increased for five consecutive sessions, representing the longest series of interest rate hikes since the end of November 3.

The 5-year treasury note separately
TMUBMUSD05Y, 0.766%
The yield rose 18.7 basis points to 0.799% – the biggest daily gain since December 7, 2010.

Bond prices fall as yields rise.

For the week, the 10-year and 30-year bonds are on their way to their biggest weekly moves since January 8, while the 2-year yield was on its way to its biggest weekly rate hike since June 5, 2020.

For the month, the 5-year and 10-year years are on track to their biggest monthly increases since 2016, while the 30-year years are on track to the biggest monthly revenue increases since 2009, according to Tradeweb.

The 2-year race was on its way to its strongest monthly increase since 2019.

What drives Treasurys?

The combination of a recovering US economy thanks to COVID vaccination efforts, trillions in tax breaks, and accommodative monetary policy is likely to result in inflation that has not been seen since the 2008 financial crisis.

That fact has partly contributed to a bond sell-off and a reasonable surge in yields that has been filtered through the broader market.

In addition, one strategist said Thursday’s strong yield spike could also be due to investors being sidelined and forced to close out their bullish positions in Treasury futures, which in turn drives interest rates higher.

Even before yields flew stronger on Thursday, Australian, New Zealand and European government bonds weakened and some of the easing pressure was bleeding into the US government bond market.

One of the big fears in the market is that the rise in interest rates will undo the central banks’ maintained easy lending conditions and raise questions about whether policy makers will oppose the sell-off.

The 10-year yield on German government bonds
TMBMKDE-10Y, -0.228%
rose 7.3 basis points to minus 0.22% during the 10-year Australian bond rate
TMBMKAU-10Y, 1.771%
rose by 12 basis points to around 1.73%.

Senior Federal Reserve officials including Esther George, President of the Kansas Fed and James Bullard, president of the St. Louis Fed, said on Thursday said they will not be bothered by the recent surge in yields, which may also put off investors.

Read: 3 reasons the bond yield surge is picking up steam and rocking the stock market

Fed chairman Jerome Powell said in a semi-annual congressional statement this week that higher bond rates reflect the improving economic outlook, suggesting that further action by the Fed may not be imminent.

Investors also faced a parade of economic data. Durable goods rose 3.4% in January, home sales fell 2.8% last month, and a second estimate of fourth quarter gross domestic product came in at 4.1%.

Initial jobless claims fell sharply from 841,000 to 730,000 in the week ending February 20, but were still elevated.

And the finance department This week’s auctions closed with sales of $ 62 billion worth of 7-year debt. The auction recorded its worst value in history at 4.2 basis points. The final point is the gap between the highest yield the Treasury Department sold in the auction and the yield before the auction started.

What did the market participants say?

“I would have said a day ago that the 10-year deadline could be 1.50% if the markets get really bullish, but once you’re in the 1 1/4% range, you break the fundamentals,” said Robert tip. Chief Investment Strategist at PGIM Fixed Income in an interview.

Ultimately, bond investors have still had to grapple with the long-term structural factors that have lowered interest rates and growth, and therefore any significant spike in inflation is likely to be temporary, Tipp said.

Ed Al-Hussainy, senior interest rate and currency analyst at Columbia Threadneedle Investments, said until the Fed backs its words with concrete measures like optimizing its asset purchases, yields could continue to rise.

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