Yields higher as US Treasury keeps note, bond auction sizes steady

CHICAGO: US Treasury yields drifted higher and the yield curve steepened on Wednesday amid stronger economic data and a quarterly refunding announcement that keeps the sizes of upcoming auctions for notes and bonds unchanged.

The benchmark 10-year yield was last up 1.8 basis points at 1.1254%.

After record issuance last year to fund massive federal spending to aid the coronavirus-battered economy, the US Treasury Department on Wednesday said it has "sufficient capacity to address near-term projected borrowing needs."

Jim Vogel, senior rates strategist, at FHN Financial in Memphis, Tennessee, said the market had been expecting auction sizes to remain steady.

"The fact they are staying flexible and not acting quickly on the idea of 'oh low rates are great, let's borrow while we can' should be a bigger positive for Treasuries over time," he said.

He added that the new team under Treasury Secretary Janet Yellen may be taking a "different view toward Treasury issuance and cash management and a couple of other things on the total balance sheet of the government than the previous team." The Treasury also said the extent of the expected decline over the upcoming quarter in its cash balance, which stood at $1.729 trillion at the end of 2020, will depend on uncertain factors, including the potential for additional legislation.

Congressional Democrats took the first steps on Tuesday toward advancing President Joe Biden's $1.9 trillion COVID-19 aid package.

The Treasury announced auctions next week for $58 billion of three-year notes, $41 billion of 10-year notes and $27 billion of 30-year bonds, unchanged from last month.

Yields on the longer end of the curve inched higher after stronger economic data.

Ahead of Friday's release by the US Labor Department of January employment data, the ADP National Employment Report on Wednesday showed a rebound in hiring last month, with private payrolls increasing by 174,000. Economists polled by Reuters had forecast private payrolls would rebound by 49,000 in January.

The Institute for Supply Management reported that January US services industry activity increased to its highest level in nearly two years.

A closely watched part of the yield curve, which measures the gap between yields on two- and 10-year Treasury notes , was last up about 2 basis points at 99.98 basis points.

The spread between five-year notes and 30-year bonds , which is at levels last seen in 2016, was last at 144.31 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was last up less than a basis point at 0.1191%.