US Treasuries Settle Mixed After Solid Auction of 30-Year Bonds

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(Bloomberg) -- US Treasuries ended the session mixed, paring earlier losses, after an auction of 30-year bonds drew solid demand.

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Yields on the 30-year bonds were little changed at 4.87% while the benchmark 10-year’s settled about one basis point higher Thursday afternoon in New York. Earlier in the session, the $22 billion auction went smoothly, capping off a week of sales that showed ample appetite for US government debt.

“No one is timid to step up and buy the long-dated securities especially when 30-year yields are close to 5%,” said Tom di Galoma, managing director at Mischler Financial Group.

Thursday’s auction saw bonds awarded at a yield of 4.889%, nearly matching the pre-auction yield just before the bidding deadline. It followed a strong showing for $39 billion of 10-year notes on Wednesday that sent yields lower.

“Despite all the handwringing about the US fiscal trajectory, the 10-year and 30-year auctions have gone off without any issue or large market concession,” said Priya Misra, portfolio manager at JP Morgan Investment Management.

The results come as investors return their focus to fiscal policy. US bond yields have risen since President Donald Trump signed his tax bill into law last week, adding an estimated $3.4 trillion to deficits over the next decade, according to the non-partisan Congressional Budget Office.

What Bloomberg Strategists say:

“...per earlier auctions direct bidders were once again more prominent than usual. Overall, it’s a pretty solid result that should assuage some of the fears of fiscal-led bear steepening, at least in the short term.”

— Cameron Crise, Macro Strategist, Markets Live

For the full analysis, click here.

UK government borrowing costs have also increased on fears the government will be forced to sell more bonds to finance spending. In Japan, bond yields surged 20 basis points over the first two days of this week on concerns that politicians will loosen fiscal policy as they court voters ahead of elections. A sale of 20-year debt went off without spectacle earlier Thursday, offering some reassurance.

Initial US jobless claims released Thursday morning fell for a fourth week to 227,000, slightly below the 235,000 expected by economists polled by Bloomberg. Treasuries were little changed after data was released.

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Interest rate swaps continue to imply the Fed will hold interest rates steady later this month, with two quarter-point reductions by year-end.

On Thursday, Fed Governor Christopher Waller repeated that he thinks the federal funds rate is too restrictive and that policymakers should consider cutting at this month’s meeting.

Waller, who is reportedly on the short list of candidates being considered by Trump to be the next Fed chair, also said the bank should be able to reduce reserve balances.

--With assistance from Isabella Ward and James Hirai.