2 weeks ago
US Sells 10-Year Debt at Highest Yields Since 2007
The United States government borrows money by selling special IOUs called bonds.
A 10-year bond promises to pay the money back in ten years.
The government just sold $42 billion worth of them.
This time investors got a higher reward, 4.68 percent interest, the most since 2007.
That was the year before the big financial crisis.
Prices of everyday things have been rising faster than the government wants.
The government also already owes a lot of money.
Because of that, lenders ask for more interest.
Experts disagree over whether the Federal Reserve, the country's central bank, will raise rates again in September or wait for new reports.
The US sold $42 billion of 10-year Treasuries at a yield of 4.683%, the highest since 2007, with demand only slightly lagging expectations.
Inflation running above the Federal Reserve's target and swelling budget deficits are keeping long-dated yields elevated, analysts say.
July core CPI rose 0.2% from June and 2.5% from a year earlier, the slowest annual pace since March 2021, per Bureau of Labor Statistics data.
After the CPI report, swap markets implied about a 40% chance of a September rate hike, down from roughly 50% before the data.
A 30-year Treasury auction on Thursday is expected to take place at the highest financing rate in a quarter century.
- Who
- The US government, which sold the bond; the Federal Reserve under Chairman Kevin Warsh; and bond investors and analysts such as those at Aviva Investors, Natixis North America, AmeriVet Securities and Hirtle & Co.
- What
- A $42 billion auction of 10-year US Treasuries priced at 4.683%, the highest 10-year yield since 2007, ahead of a 30-year sale expected at the highest financing rate in a quarter century.
- Where
- New York, where the auction's 1 p.m. bidding deadline fell; attention also turns to the Jackson Hole, Wyoming, symposium at the end of the month.
- When
- Wednesday's auction, with July CPI data released the same session; a 30-year sale follows Thursday, and the Federal Reserve next votes on rates in September.
- Why
- Inflation running above the Federal Reserve's target and swelling federal budget deficits have led investors to demand more compensation for financing the US government.
Hawks: More tightening may be needed
Doves: Fed should hold off
September rate decision
Hawks: More tightening may be needed
July CPI data should keep September rate hike expectations alive; with inflation above the Fed's target and solid growth, policymakers may still need additional tightening later this year (Steve Ryder, Aviva Investors).
Doves: Fed should hold off
The Fed will be able to narrowly avoid a hike thanks to a gradual drift toward target inflation, a cooling consumer sector and a more precarious jobs outlook, with more weight on the next CPI and labor market reports (Christopher Hodge, Natixis North America).
Level of long-dated yields
Hawks: More tightening may be needed
It is hard for yields to come down given outsize deficits, solid growth, the war and inflation running above the Fed's target (Gregory Faranello, AmeriVet Securities).
Doves: Fed should hold off
Many forces militate against broad inflation, most notably flat real wages, so adding exposure to 20-year bonds above 5% is attractive (Brad Conger, Hirtle & Co.).
Key facts
- Auction size
- $42 billion of 10-year US Treasuries
- 10-year auction yield
- 4.683% (highest since 2007)
- July core CPI (monthly)
- +0.2%
- July core CPI (annual)
- +2.5% (slowest since March 2021)
- Implied September rate-hike odds
- About 40% after CPI data, down from roughly 50%
- Two-year Treasury yield
- About 4.2%
- Next 30-year auction
- Thursday, expected at highest financing rate in about 25 years
- Next Fed decision
- September meeting; Jackson Hole symposium at month-end
Quotes
Gregory Faranello
Head of U.S. rates trading and strategy at AmeriVet Securities
“It’s still hard for yields to come down with outsize deficits, growth running solid, the war and inflation running above the Fed’s target,”
livemint.com
Steve Ryder
Senior fixed‑income portfolio manager at Aviva Investors
“While the data should keep September rate hike expectations alive, it also provides little urgency for the Fed to act immediately,”
livemint.com
Sources
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