Treasurys Stabilize After 10-Year Note Auction
August 12 2020 - 4:08PM
Dow Jones News
By Anna Hirtenstein
U.S. government bonds came under selling pressure for the fourth
straight session Wednesday though there were signs of stabilization
following a $38 billion auction of new 10-year notes.
The yield on the benchmark 10-year U.S. Treasury note settled at
0.669%, its highest close since July 6, compared with 0.657%
Tuesday.
Yields, which rise when bond prices fall, had climbed heading
into the auction, with the 10-year yield reaching as high as
0.690%.
That marked a turnaround for the bond market, which ended last
week with 10-year yields stalled near record lows below 0.6%. 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 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. After
issuing $48 billion of three-year notes on Tuesday, the government
sold $38 billion of 10-year notes Wednesday afternoon at a 0.677%
yield. Thursday's 30-year bond auction will total $26 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.
--Sam Goldfarb contributed to this article.
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com
(END) Dow Jones Newswires
August 12, 2020 15:53 ET (19:53 GMT)
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