Treasury yields rise

US Treasury yields rose on Wednesday as the Organization of the Petroleum Exporting Countries (Opec) agreed to its first output cuts since 2008, sending oil prices more than 8 percent higher and boosting expectations of higher inflation. Opec agreed on a proposal by member Algeria to reduce production by around 4.5 percent, or about 1.2 million barrels per day.
"Most of the move ... was related to the Opec news," said Thomas Simons, a money market economist at Jefferies in New York. Benchmark 10-year notes dropped 17/32 in price to yield 2.36 percent, up from 2.30 percent on Tuesday. Thirty-year bonds, which are most sensitive to inflation eroding their value, tumbled 1-1/12 in price to yield 3.02 percent, up from 2.95 percent on Tuesday. Expectations of higher government stimulus added to bond weakness. US bond yields have soared since the surprise election of Donald Trump as president on November 8 as investors bet that he will enact policies that increase spending and debt as well as spur growth and inflation.
Steven Mnuchin, Trump's nominee to run the Treasury Department, said on Wednesday the administration would make tax reform and trade pact overhauls top priorities as they seek a sustained pace of 3 percent to 4 percent economic growth. "The market hasn't been priced for any of this. It wasn't priced for the Trump election, it wasn't priced for fiscal stimulus. Now the market's trying to figure out what it needs to discount in order for that to happen," said Tom Tucci, head of Treasuries trading at CIBC in New York. Mnuchin also said that will explore issuing debt maturing in more than 30-years to cushion the effect of rising rates, adding to pressure at the long-end of the Treasury yield curve.
The average maturity of US Treasury debt has already been growing. As of the end of September, it stood at 70 months, the highest since 2001, and up from a low of 49 months during the financial crisis. By some estimates, the average maturity of Treasuries outstanding was already on course to grow to 80 months or more by the mid-2020s.