Yields rise as Treasury considers ultra-long bonds

Imaduddin August 20, 2019

NEW YORK: US Treasury yields rose on Monday after the Treasury Department late on Friday said it was gauging market interest in ultra-long-dated debt, and as risk sentiment improved.

The Treasury said it wants to “refresh its understanding of market appetite” for 50-year or 100-year year bonds. It came after 30-year bond yields fell to record lows last week on concerns about slowing growth.

The United States has previously considered issuing ultra-long bonds, though the idea was shot down in 2017 by the Treasury Borrowing Advisory Committee, a group of banks and asset managers that advise the Treasury on its debt strategy.

The committee said at the time that there was no “evidence of strong or sustainable demand for maturities beyond 30 years.”

“We had the news on Friday afternoon that Treasury is reengaging people on the possibility of an ultra-long Treasury, and that set off a bad Treasury tone that carried overnight,” said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.

It “then got aggravated by the better risk appetite that we’re seeing in equities,” Vogel said.

Chinese interest rate reform and hopes of fiscal stimulus in Germany boosted risk sentiment on Monday and reduced demand for safe-haven US debt.

Central banks globally are expected to adopt increasingly dovish monetary policies as economic data worsens.

But with much of the European government bond market offering negative yields, there is concern that central banks are out of ammunition and that governments will need to turn to fiscal stimulus to bolster their economies.

The US Federal Reserve is seen as certain to cut rates when it meets next month, despite saying in July that further rate decreases may not be needed following its first cut in over a decade.

Fed Chairman Jerome Powell is due to speak at the Fed’s economic symposium in Jackson Hole, Wyoming, on Friday. His comments will be closely evaluated for any shift in his stance on future easing.

Benchmark 10-year notes were last down 16/32 in price to yield 1.593%. The yields have risen from a three-year low of 1.475% on Thursday.

The yield curve between 2-year and 10-year notes flattened to 6 basis points, after steepening as far as 10 basis points earlier on Monday. The curve inverted on Wednesday for the first time since 2007, signaling a recession is likely in one to two years.

Copyright Reuters, 2019
 

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