Yield curve edges steeper before 10-year auction

NEW YORK: US Treasury yields were little changed on the day on Wednesday while the yield curve steepened slightly, before the government will sell $35 billion in 10-year notes.

The Treasury has been increasing the size of its auctions across the curve as it pays for stimulus meant to boost the economy after coronavirus lockdowns, but some investors are concerned that long-dated yields may need to rise further to attract buyers.

Analysts say that the benchmark 10-year notes are likely to see solid demand, despite concerns about how much appetite there is for longer-dated debt after weak auctions of 20-year and 30-year bonds in August.

"The concern is really over the 20s and 30s," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York. "I think a lot of folks are on edge, waiting for all the supply to clear this week before making a judgment and really just breathing a sigh of relief."

Wednesday's 10-year reopening is $6 billion larger than the last reopening in July, but $3 billion less than August's record refunding. The Treasury will also sell $23 billion in 30-year bonds on Thursday, up from $19 billion at July's reopening but below the record $26 billion sold at the August refunding.

The Treasury on Thursday will announce the size of its 20-year bond auction scheduled for next week.

A record $50 billion sale of three-year notes on Tuesday saw slightly soft interest.

Benchmark 10-year note yields were unchanged on the day at 0.684%. The yield curve between two-year and 10-year notes steepened less than a basis point to 54 basis points.

Another major focus is whether the United States Congress is likely to pass new stimulus to boost the economy after the spread of the novel coronavirus closed businesses across the country.

If new spending is not imminent it could boost demand for Treasuries, as the threat of further increases in supply in the near term would ease. At the same time, concerns about further economic weakness would grow.

"That is $1-$1.5 trillion dollars of supply that won't hit the market, and that's quite a bit of fiscal drag as well," Goldberg said.

The Senate Democratic leader Chuck Schumer said on Wednesday he believes there is a good chance Congress will pass a coronavirus relief bill and predicted Republicans will feel pressure to provide help for Americans suffering from the pandemic.