U.S. Treasury yields fell Thursday as an auction for inflation insurance showed investors were beginning to tire of taking down the waves of new debt supply, while suggesting worries around price pressures could be waning.
What are Treasurys doing?
The 10-year note yield TMUBMUSD10Y, 0.651% fell 3 basis points to 0.644%, while the two-year note rate TMUBMUSD02Y, 0.145% edged down 0.2 basis points to 0.139%. The 30-year bond yield TMUBMUSD30Y, 1.387% slipped 3.8 basis points to 1.376%. Yields move in the opposite direction of bond prices.
What’s driving Treasurys?
A $7 billion auction for 30-year Treasury inflation-protected securities saw tepid demand on Thursday, briefly pushing up inflation-adjusted yields and pulling down breakeven inflation rates, or investors’ forecasts for consumer prices.
Analysts said the reduced demand for inflation compensation reflected how investors have struggled to take down the surge in debt supply after the Treasury Department announced a slew of increases to its bond auctions a few weeks ago.
At the same time, the auction helped to keep longer-term yields lower as price pressures can hurt the value of a bond’s fixed-interest, and thus worries around inflation can lift yields.
The bond market saw losses on Wednesday after the Federal Reserve suggested in the minutes of its July minutes that it would not keep Treasury yields in check through so-called yield curve control polices.
The FOMC minutes also showed the Fed’s staff economists were cautious over the economic outlook over the second half of the year, dampening hopes that the U.S. would experience a rapid recovery following the deep contraction during the second quarter.
Fed Chairman Jerome Powell will speak next Thursday on how the U.S. central bank intends to achieve its unemployment and inflation targets as part of its review of its monetary policy framework.
In economic data, the number of Americans filing for jobless claims in the latest weekly period unexpectedly rose to 1.106 million, from 971,000. In other data, the Philadelphia Federal Reserve said its gauge of regional manufacturing activity fell to a reading of 17.2 in August, from 24.1 in July.
What did market participants say?
“Obviously there could be some isolated pockets of inflation. But with this much debt out there, I see the difficulty of real yields going higher,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management, in an interview.