US Treasuries were trimming overnight gains, with modest weakness in longer dated debt as investors awaited a Thursday auction of 30-year securities that will offer a fresh test of demand for the beleaguered securities.
An early rally that mirrored moves in European bonds lost steam ahead of the Wall Street open for equity trading. Treasuries were clinging to gains on maturities out to the 10-year. That left US government bonds still nursing the bulk of sharp losses from Friday’s stronger-than-expected US jobs report that saw traders dial back Federal Reserve interest rate cut expectations.
A quieter day for economic data Monday is shifting attention to US and China trade talks in London, and events later this week, including consumer inflation on Wednesday and the debt sale the following day. While scheduled bond auctions are typically routine affairs, Thursday’s $22 billion offering will be particularly scrutinized given the recent volatility in long-dated global bonds. Yields have soared in recent weeks amid growing concern over major governments’ spiraling debt and deficits.
“The 30 year is a kind of tail risk type of rate,” said Jeffrey Klingelhofer, portfolio manager at Aristotle Pacific Capital LLC in Newport Beach. “Concerns over deficit spending” matter far more for the long end than, “the seven to 10 year and certainly the shorter part of the curve,” he said.
The US 30-year yield has been marching higher since early April, hitting a peak of 5.15% on May 22, the highest since 2023. It was up around two basis points at 4.99%, from a session low of 4.94% on Monday, while the 10-year yield hovered around 4.51%.
“This is going to be key and really set the tone into June as a whole,” said Lauren van Biljon, fixed income portfolio manager at Allspring Global Investments, on Bloomberg TV, about the 30-year Treasury auction. “We know how much anxiety there is around longer-term financing.”
Mike Riddell, a portfolio manager at Fidelity International, said he’s entered a steepener position, which profits from long-dated bonds underperforming shorter ones. Like PGIM Fixed Income, he said the forces driving ultra-long bonds have shifted away from monetary policy.
“It’s no longer about policy rates, it’s all about the fiscal story and demand supply dynamics,” Riddell said. It’s “really concerning” that there “doesn’t appear to be any change in policy on the back of these market moves,” he added.
The US will also hold auctions for three and 10-year notes on Tuesday and Wednesday, respectively. Bond traders must also navigate the May CPI report, with economists surveyed by Bloomberg forecasting the year-on-year rate ticking up from 2.3% to 2.5%.
“Signs of inflation pressure could knock risk sentiment, and it may even limit dollar upside, especially if it threatens the US’s 30-year Treasury auction on Thursday,” Kathleen Brooks, research director at XTB wrote in a note.
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