By Anna Hirtenstein 

Investors sold U.S. Treasury bonds in anticipation of 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 0.680%, 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 get ready 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 scheduled to raise high levels of debt from a weekly note and bond sale as it seeks to boost spending programs to engineer an economic rebound. On Wednesday, the government is scheduled to auction $38 billion of 10-year bonds at about 1 p.m. ET, followed by the sale of $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


(END) Dow Jones Newswires

August 12, 2020 09:33 ET (13:33 GMT)

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