Market Extra: Treasury’s $13 billion auction of 20-year bonds seen as test of demand
Michael M. Santiago/Getty ImagesTreasury’s $13 billion auction of 20-year government bonds on Wednesday is being viewed as a test of demand for long-dated Treasurys, with the potential to either lessen or exacerbate the selloff being seen during the New York session.The selloff pushed the 30-year Treasury yield BX:TMUBMUSD30Y past 5% during Wednesday morning trading and on its way to the highest close since Aug. 15, 2007. The benchmark 10-year yield BX:TMUBMUSD10Y also jumped to 4.9%, while its 20-year counterpart rose to around 5.2%.A string of stronger-than-expected U.S. data, including Tuesday’s retail sales report for September, has confounded analysts and triggered a round of upward revisions to third-quarter economic growth on Wall Street. Morgan Stanley MS now expects a 4.9% rate for that period, up from 4.5% previously. The economy remains resilient despite the geopolitical risks being created by Israel’s war on Hamas and the Federal Reserve’s decision to step away from the Treasury market as a major buyer through the process known as quantitative tightening.“Greater supply in general of Treasury issuances and the Fed’s QT have been the drivers of the selloff in long-dated Treasurys and one of the triggers for bear steepening,” said Daniel Tenengauzer, a New York-based strategic adviser for the financial technology firm called bondIT. Bear steepening refers to a trading environment in which long-term rates are increasing at a faster rate than short-term ones. “The Fed has gone away and there are not enough major buyers who are insensitive to prices,” Tenengauzer said via phone on Wednesday. “Investors can get high yields in the short end, so why should they take the risk [in longer-term Treasurys]?”Higher Treasury yields have been having an impact on the equity market since the early part of last year, he also said. As of late Wednesday morning, all three major U.S. stock indexes DJIA SPX COMP were lower as 10- and 30-year Treasury yields moved further above their highest levels since 2007. As of Tuesday, they had jumped by more than 150 basis points each from their 52-week lows seen respectively on April 5 and Dec. 7.
Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.
