US Treasury yields increased on Wednesday with benchmark yields hitting a four-week high as Wall Street's key indexes posted record highs amid investor optimism about the economy and the policies of the administration of President Donald Trump. Investors further scaled back their bond holdings following a poor $34 billion auction of five-year Treasury notes, part of this week's $88 billion in coupon-bearing government debt supply.
US bond yields broke above the trading range set at the start of 2017 as investors assessed the effect of Trump's early actions on trade, business investment and infrastructure spending on company profits, inflation and federal borrowing, traders and analysts said. "We have gone back and forth with the Trump euphoria trade as markets are watching what Trump can deliver," said Thomas Roth, head of US Treasury trading at MUFG Securities in New York.
On Wall Street, the Dow broke above the 20,000-point level for the first time, while the S&P 500 and Nasdaq raced to all-time peaks. The yield on US benchmark 10-year Treasury notes rose 5 basis points to 2.521 percent, below Wednesday's session high of 2.538 percent earlier, which was its highest since December 28, according to Reuters data.
Investors have piled into stocks since Tuesday after Trump urged US automaker executives to build more vehicles domestically and signed executive orders to speed up the building of the Keystone XL and Dakota oil pipelines. These moves, aimed at boosting jobs and investment, followed his actions on Monday to revamp deals with its Asian and North American trading partners which investors fear would hurt exports and raise business costs.
As equities roar to record heights, investors dialed back their appetite for low-yielding Treasuries with tentative signs of inflation picking up and after a lackluster $26 billion two-year note sale on Tuesday. In the inflation securities market, the five-year by five-year forward rate, which measures investors' 10-year inflation outlook, reached 2.18 percent on Monday, the highest since July 2015, according to the St. Louis Federal Reserve.
Wednesday's weak results at the five-year fixed-rate Treasuries and two-year floating-rate note auctions signalled a renewed skittishness among investors to own Treasury debt, an about-face from a week ago. "This is a bond bear market and upticks will continue to be sold," Jefferies & Co money market strategist Tom Simons wrote in a research note.
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