U.S. Treasuries Yields Soar

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

In notes to clients, some said President Biden’s prime-time speech Thursday night could have made investors more optimistic about the economic outlook. In his remarks, Biden called on states to make all American adults eligible to receive a vaccine by May 1 and said families and friends could likely come together in small groups to celebrate Independence Day. .

Some analysts have also attributed the move at least in part to “supply indigestion” after the US Treasury sold $ 120 billion in three-year notes, 10-year notes and 30-year bonds. during the previous three days. While demand for these auctions has been reasonably strong, large auctions can sometimes trigger aftershocks if investors feel happy with what they just bought at the auction and are reluctant to buy more.

Yields began to rise sharply a month ago after the same round of auctions, raising fears that a flood of new debt could exacerbate market pressure caused by expectations of a strong economic rebound and possible increases in interest rates from the Federal Reserve. Some traders say the market could be more vulnerable on Fridays as well, with investors nervous about buying Treasurys before the weekend.

As yields rose on Friday, traders watched to see if the 10-year yield would rise above 1.626%, its recent intraday high set a week earlier. It broke that level by mid-morning, resulting in a brief spike in sales.

Investors pay special attention to the long-term yields of US Treasuries, as they play an important role in determining the costs of borrowing throughout the economy. Many investors also use the yield on 10-year treasury bills as the discount rate in formulas to value stocks, making rising yields a particular threat to tech companies that are expected to realize a greater proportion of their profits in the future.

Investors are also assessing whether the weakness in Treasuries is spilling over into the corporate bond market. While the yields on investment-grade corporate bonds typically increase with those on treasury bills, many see the widening gap between the two, leading to a greater increase in borrowing costs, to be a bigger problem. important.

As it stands, borrowing costs remain very low for most companies, although the average additional yield required by investors to hold corporate bonds rather than T-bills has increased in recent weeks. .

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

sold $ 25 billion worth of bonds, tied for the sixth-largest corporate bond sale on record, to help fund its recent spectrum purchases.

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

Write to Sam Goldfarb at [email protected]