US Treasury yields rise sharply

Yields, which rise as bond prices fall, rose steadily overnight, despite lacking an obvious catalyst, leaving analysts looking for explanations.

In notes to clients, some said President Biden’s early speech Thursday night could have made investors more optimistic about the economic outlook. In the direction, Mr. Biden addressed the states so that all American adults were eligible to receive a vaccine before May 1 and said families and friends could probably gather in small groups to celebrate the Day. of Independence.

Some analysts also attributed the measure, at least in part, to “supply indigestion” after the U.S. Treasury sold $ 120 billion in three-year notes, ten-year notes and 30-year bonds for the previous three days. While demand for these auctions was reasonably strong, large auctions can sometimes provoke aftershocks if investors are satisfied with what they just bought on sales and are hesitant to buy more.

Yields began to rise sharply a month ago after the same series of auctions, raising concerns that a flood of new debt could exacerbate market pressure caused by expectations of a sharp economic rebound and eventual rate hikes. interest of the Federal Reserve. Some traders say the market may also be more vulnerable on Fridays, with investors nervous to buy Treasurys before the weekend.

As yields rose on Friday, traders watched as 10-year yields would rise above 1.626%, their recent intraday high set a week earlier. This level was exceeded in the middle of the morning, which led to a brief boost in more sales.

Investors pay close attention to long-term U.S. Treasury yields, as they play an important role in determining the costs of debt across the economy. Many investors also use the ten-year Treasury yield as a discount rate on stock valuation formulas, making rising yields a particular threat to technology companies that are expected to get a higher proportion of their holdings. benefits in the future.

Investors are also assessing whether Treasurys ’weakness is spreading in the corporate bond market. While the yields on investment-grade corporate bonds tend to rise along with those of Treasurys, many see it as a bigger problem if the gap between the two widens, causing a bigger jump in borrowing costs.

As it stands, loan costs remain very low for most companies, although the average return required by investors to hold corporate bonds on Treasurys has risen in recent weeks.

The attractive lending market stood out on Thursday when Verizon Communications Inc.

sold $ 25 billion in bonds, tied to the sixth-largest sale of corporate bonds on record, to help fund its recent spectrum purchases.

From March 1 to Thursday, non-financial corporations issued $ 81 billion in investment-grade bonds, up from $ 38 billion in the previous two-week period, according to Dealogic.

Write to Sam Goldfarb at [email protected]