Key Takeaways
- US 10-year Treasury yields reached their highest levels since 2023.
- Treasury Department announced an enlarged buyback of longer-dated bonds.
- Strong demand for 10-year notes brought yields down from historical highs.
US 10-year Treasury yields reached their highest levels since 2023 on Wednesday, following the announcement of an enlarged Treasury buyback of longer-dated bonds. This move disappointed some investors who had hoped for a larger operation.
The U.S. Treasury Department stated that it would buy up to $6 billion in 10- to 20-year Treasury bonds during its buyback operation on Thursday, tripling the size of its last long-dated operation. This decision came after the government saw very strong demand for a $39 billion sale of 10-year notes.
Tom di Galoma, managing director at Mischler Financial, commented, 'People thought the buyback was going to be larger than $6 billion. It was a disappointment so bond prices sank and yields rose.'
The auction of 10-year notes saw a high yield of 4.834%, more than a basis point below where they traded ahead of the auction. Demand was 2.71 times the amount of debt on offer, the highest since 2019.
The U.S. government also saw solid demand for its $58 billion sale of 3-year notes on Tuesday and will also sell $22 billion in 30-year bonds on Thursday. The yield on benchmark U.S. 10-year notes was last up 3.06 basis points at 4.835% after earlier reaching 4.8568%, the highest level since November 2023.
The 30-year bond yield rose 2.06 basis points to 5.2846% after touching its highest level since August 18. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 2.52 basis points to 4.423%, after earlier trading at 4.4316%, its highest level since July 2024.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 41.0 basis points.
Meanwhile, oil prices breached $100 for the first time since July as the intensifying conflict in the Middle East heightened concerns about supply. This move came as investors waited for inflation data, which analysts say will be key to the Federal Reserve’s interest rate decision next week.
People thought the buyback was going to be larger than $6 billion. It was a disappointment so bond prices sank and yields rose.
Tom di Galoma, Managing director at Mischler Financial
