Investors Sell Treasurys Amid Debt Deluge
August 12 2020 - 2:05PM
Dow Jones News
By Anna Hirtenstein
Investors sold U.S. Treasury bonds in response to a wave of new
government debt becoming available this week, sending long-term
yields on Wednesday to their highest level in over a month.
The yield on benchmark 10-year government bonds rose for a
fourth trading session to as high as 0.690%, from 0.535% on Aug. 6,
reflecting a drop in prices. The yield on the 30-year bond
continued its ascent, reaching its highest level since early
July.
The sharp move upward marks a significant turnaround for the
bond market, which ended last week with 10-year yields stalled near
record lows. The Treasury market's signals this year have been
difficult to read for some investors, with the slide in bond yields
suggesting they are nervous about the economic outlook, even as the
sharp rally in U.S. stocks since a March low sends the opposite
message.
The yield's climb in recent days was likely triggered by bond
dealers paring back some of their holdings and fund managers making
room in their portfolios as they prepared for the wave of new bonds
on offer, investors said. Thinner trading volumes during August,
which marks the summer vacation period in the U.S. and Europe,
likely also contributed to the drop.
The U.S. this week is raising high levels of debt as it seeks to
boost spending programs to engineer an economic rebound. On
Wednesday, the government sold $38 billion of 10-year bonds at a
0.677% yield. It will sell $26 billion of 30-year debt on Thursday.
After $48 billion of three-year notes was sold Tuesday, that would
bring the week's total to $112 billion.
Treasury yields are "clearly at a more interesting level now,"
said Laurent Crosnier, chief investment officer at Amundi's London
branch. "Valuations were very stretched, the market was pricing in
too much bad news without taking into account the supply that was
coming."
If U.S. lawmakers are able to hammer out a deal on yet another
stimulus package, the government may issue another $1 trillion in
bonds, Mr. Crosnier estimated.
Demand should be high for the newly issued debt on offer as
investors buy safer assets in anticipation of further volatility in
markets, said Sebastien Galy, a macro strategist at Nordea Asset
Management. Equity markets may take a hit in September and October
as optimism about a speedy economic recovery dissipates, he
said.
He is recommending that investors hold U.S. Treasurys that on
average come due in about 15 years, which can be achieved through a
mix of the 10-year and 30-year bonds, to protect against this.
"Something will start to give. There's a lot of overoptimism in
markets right now," Mr. Galy said. "You need to look at hedges to
protect yourself, own something that can give you some oomph and
still offer value" if other asset classes such as stocks fall, he
said.
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com
(END) Dow Jones Newswires
August 12, 2020 13:50 ET (17:50 GMT)
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