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[Nueva York, 10 de Reuters]- The 10-year US Treasury offering will take place on the 10th in the US bond market. US Treasury yields remain volatile and are likely to attract investors’ attention to determine future directions.
The United States Treasury has significantly increased the issuance of government bonds over the past year to secure funding for the new coronavirus economic stimulus package.
According to the American Securities and Financial Markets Association (SIFMA), the number of new government securities issued in 2020 was approximately $ 3.6 trillion, up from $ 2.9 trillion the previous year.
According to ING, the issuance amount in 2021 is expected to reach $ 4 trillion due to additional economic measures of $ 1.9 trillion launched by President Biden.
In addition to this expansion in supply, the yield on the 10-year bond increased by more than 20 basis points (bps) due to the unsuccessful auction of 7-year bonds at the end of February. As a result, the volatility of the stock market has increased.
For this reason, market participants are paying attention to the 10-year bond auction ($ 38 billion) at 1:00 pm EST on the 10th (at 3:00 am on the 11th Japan time) .
“This 10-year bond auction is expected to have a significant impact on market sentiment in the coming weeks,” said Gregory Whitley, dual-line portfolio manager.
NatWest analysts said in a report that yields could “rise again in the middle of the week” following a 10-year bond auction on the 10th and a 30-year bond auction on the 11th. 3-year bonds ($ 58 billion) held on the 9th “was not good enough to change my mind (on the 10-year bond auction).
If government bond yields rise further, the Federal Reserve may comment. The FBR will meet with the Federal Open Market Committee (FOMC) on 16-17.
“If the market goes too far, (the Fed) will have to make some comments to stop the excessive rise in yields,” said David Norris, head of US credit at Twenty for Asset Management.
Whitley said that if demand falls at auctions, 10-year bond yields could rise another 20 bps in the next 1-2 weeks.
The Fed’s countermeasures include increasing the purchase of government bonds and extending the easing of the “supplemental leverage ratio.” By extending this last easing, banks will be able to maintain their current Treasury holdings.
However, Fed Chairman Powell said in an interview with The Wall Street Journal that he did not consider the rise in government bond yields to be a “chaotic” move or the need for Fed intervention.
“If the offers are strong, the Fed may think that interest rates are going up for very good reasons,” said Megan Swiber, US interest rate strategist at Bank of America. The Fed said it doesn’t necessarily need to intervene.
Demand from Japanese investors has a major impact on the outcome of the 10-year bond auctions. According to the US Treasury, Japan is the world’s largest holder of US Treasuries, but investors balance their positions before the end of March 31.
Ben Jeffrey, interest rate strategist at BMO Capital Markets, said one reason for the decline in the 7-year bond auction was a decline in demand from Japanese investors. “This week’s 10-year bond auction will follow the same pattern,” he predicts.
However, some say that if the yield increases further after the 10-year bond auction, investors seeking higher yields will eventually buy US Treasuries, stopping the yields from rising.
“If yields go up, I think Japanese pension funds and investors could buy, because the level of US Treasury yields looks very attractive,” Swiber said.
