US Treasury yields rise sharply

Yields, which rise as bond prices fall, have risen steadily overnight, despite an obvious catalyst, leaving analysts looking for explanations.

In notes to clients, some said that President Biden’s prime-time speech on Thursday night could have made investors more optimistic about the economic outlook. In the address, Mr Biden urged states to make all eligible American adults vaccinated by May 1 and said families and friends would be able to gather in small groups to celebrate Independence Day.

Some analysts have also attributed this move to at least partly “supply indigestion” after the US Treasury sold three-year banknotes, 10-year banknotes and 30-year bonds in the past three days. Although demand for these auctions has been reasonable, large auctions can sometimes provoke retorts if investors are satisfied with what they have just bought on sale and are reluctant to buy more.

Yields began to rise sharply a month ago, following the same series of auctions, raising concerns that a flood of new debt could exacerbate market pressure caused by expectations for a strong economic recovery and possible interest rate hikes by the Federal Reserve. . Some traders say the market could also be more vulnerable on Fridays, with investors nervous to buy Treasurys before the weekend.

As yields rose on Friday, traders watched to see if the 10-year yield would rise above 1.626%, its last intraday high set a week earlier. It exceeded this level in the middle of the morning, leading to a short press of several sales.

Investors pay close attention to the long-term returns of the US Treasury, as they play an important role in determining borrowing costs throughout the economy. Many investors also use the 10-year Treasury yield as a discount rate in formulas to value equities – making rising yields a special threat to technology companies that expect to achieve a higher proportion of their future profits.

Investors also assess whether the Treasury’s weakness is pouring into the corporate bond market. While corporate bond yields typically increase with Treasurys, many see it as a bigger problem if the gap between the two widens, leading to higher borrowing costs.

At present, borrowing costs remain very low for most businesses, although the average demand for additional returns that investors are required to hold corporate bonds with Treasurys has increased in recent weeks.

The attractive lending market was highlighted on Thursday, when Verizon Communications Inc.

sold $ 25 billion worth of bonds linked to its sixth-largest corporate bond sale to help fund its recent spectrum acquisitions.

From March 1 to Thursday, non-financial companies issued $ 81 billion worth of investment bonds, up from $ 38 billion in the previous two weeks, according to Dealogic.

Write to Sam Goldfarb at [email protected]