(Bloomberg) — The Treasury market rallied after an auction of 10-year notes drew strong demand, easing concerns that investors will balk at financing swelling US deficits.
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Treasuries gained across maturities, snapping five days of losses and pushing the 10-year yield about six basis points lower to 4.34%. The debt extended gains following a smooth $39 billion auction Wednesday.
“There’s been a little bit of a sigh of relief that it’s been very well-received in the market,” Nisha Patel, a fixed-income portfolio manager at Parametric Portfolio Associates, told Bloomberg Television.
Yields had been climbing over the past week after strong employment data curbed expectations for Federal Reserve interest-rate cuts and US legislation was passed that extends tax cuts.
Minutes from the June Federal Open Market Committee showed an emerging divide among Fed officials over the outlook for interest rates, driven largely by differing expectations for how tariffs might affect inflation.
“It isn’t all that surprising that the market managed to bounce after selling off for five consecutive sessions,” wrote Ian Lyngen, head of US rates strategy at BMO Capital Markets. “The solid takedown of the 10-year auction only added to the buying interest.”
The auction drew a yield of 4.362%, slightly lower than indicated by pre-auction trading just before the bidding deadline, indicating demand exceeded expectations. A $22 billion sale of 30-year bonds is set for Thursday.
Shorter-maturity yields also declined, with the two-year note’s dropping by three basis points, supported by strong demand for August federal funds futures.
Despite the June jobs data, anticipation of Fed rate cuts has been building amid constant pressure on the central bank from President Donald Trump, who has said Chair Jerome Powell will be replaced when his term ends by someone who’ll do his bidding. Trump on Wednesday said the US policy rate was at least three percentage points too high.
What Bloomberg Strategists say:
“Contrary to expectations, there was no concession for Wednesday’s 10-year reopening, and that price action seemed to send a message. All of this has kept a bid tone to the Treasury market ahead of the Fed minutes. In any event, perhaps Thursday’s long bond auction will prove to be a bit more daunting.”
