(Bloomberg) — Longer-dated US Treasuries edged higher as investors readied for a $22 billion auction of 30-year debt, which stands to test demand as yields linger near multi-decade highs.
Thirty-year bonds wiped out an early loss to advance on Thursday, with yields down a basis point to 5.66% — just off their highest levels since 2002. The Treasury Department’s sale of the long bond at 1 p.m. New York time follows an auction of 10-year notes this week that lured standout demand from investors.
“The turnaround today may be a sign of end-user demand strengthening, which was especially evident in yesterday’s 10-year auction,” said Angelo Manolatos, rates strategist at Wells Fargo
Securities.
Longer-term debt from around the world has been selling off in recent months as angst has built up around the Iran war’s effect on energy costs and the fallout for inflation. Fiscal concerns have also added to the pressure, with 30-year Treasury yields knocking out a series of milestone levels as they surged.
On Thursday, fresh escalation in the Middle East drove oil back above $105 a barrel, renewing concern about inflation that will warrant further Federal Reserve action. Two-year yields — which are more sensitive to the Fed’s path — were higher by almost five basis points to 4.81%.
Traders are pricing in a roughly 20% chance that the US central bank boosts interest rates later this month and are fully pricing in a move by year’s end. The benchmark 10-year yield edged up to 5.29%.
A $39 billion sale of 10-year notes on Wednesday drew a yield well below what had been prevailing in the market — an indication that these elevated levels are starting to entice buyers. Non-dealer investors took down a record 97.5% of the auction.
The robust result came ahead of the 30-year bond auction set for later on Thursday. That sale will be followed by a buyback in which the Treasury will purchase as much as $6 billion of bonds maturing in 20 to 30 years, the fourth such operation since the department expanded the program as long-term yields surged to multiyear highs.
To Molly Brooks, rates strategist at TD Securities, yields appear to be finding some resistance levels that are leading in buyers.
“If we are able to see the rally hold for a few days, I think that would bring even more buyers back into the market that have been waiting for the greenlight,” Brooks said.
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