By Sunny Oh
U.S. Treasury yields inched higher Wednesday as investors absorbed the last bond auction of the week, amid questions of whether the market had enough appetite to take down the expected surge in borrowing by the U.S. government.
Traders will see a holiday-shortened week as the bond market closes early on Thursday and shutters altogether on Friday in observance of the Good Friday holiday.
What are Treasurys doing?
The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -5.15% rose 2.7 basis points to 0.762%, while the two-year note rate /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y +2.62% was down 2.6 basis points to 0.254%. The 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -2.75% climbed 3.2 basis points to 1.362%.
What’s driving Treasurys?
Traders took down an auction for $17 billion of 30-year bonds without much trouble, suggesting long-dated bonds had cheapened enough to attract bargain-minded buyers. The more successful showing reverses the tepid demand shown in debt auctions held earlier this week, which lifted yields for government paper as investors and broker-dealers struggled to take down the increased supply of bonds.
The Treasury Department has incrementally raised the size of its longer-term debt auctions from last month as it looks to finance its burgeoning deficits, which are set to balloon even further due to fiscal stimulus measures passed in Congress this year.
Treasury Secretary Steven Mnuchin said on CNBC that the government has no plan to issue 50-year bonds. Primary dealers, the select 24 market participants that buy bonds directly from the Fed, have favored the central bank selling bonds with a maturity of 20 years instead.
Investors also continue to monitor the spread of the COVID-19 pandemic in the U.S., which has reported close to 420,000 cases and more than 14,000 deaths, based on data aggregated by Johns Hopkins.
The Federal Reserve released the minutes from its mid-March meeting, showing that senior Fed officials were divided on how a U.S. recovery from the pandemic might take shape. The minutes also showed the worst-case scenario projected by staff economists was for the recovery to be delayed until next year.
In economic data, weekly mortgage applications dropped 17.9% as consumers and households were losing confidence in the economy’s vigor.
What did market participants say?
“The pretty good demand today should be taken as an opportunity next month for the Treasury to sell more 30 year bonds,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.