Steeper yield curve kicks off $237 billion auction week

The Treasury yield curve steepened on Monday, with the kick-off of a busy auction week that will see $237 billion of new debt sold.
The spread between the 2- and 10-year government note yields , the most common measure of the yield curve, widened by as much as 2.1 basis points from the last close to 20 basis points. The yield curve steepens when longer-dated yields rise faster than shorter-dated yields, suggesting bullish investor sentiment.
Government bond auction sizes have ballooned since the start of 2018 as the United States takes on debt to pay for President Donald Trump's tax cuts. Treasury issuance is likely to remain high, given the large budget deficit, but for now, auctions are at or slightly below the record sizes set in 2018.
"In the last several months, there has typically been a bit of a concession going into the auction," said Subadra Rajappa, head of US rates strategy at Societe Generale in New York. Increased supply can dampen prices, leading investors to sell off Treasury holdings ahead of auctions.
But despite the $40 billion sale of two-year notes scheduled for Tuesday, the 2-year's yield was anchored, up just half a basis point. The 2-year yield has fallen this year as the Federal Reserve indicated it will not raise interest rates in the near term, which is determining the yield even with an influx of supply, according to analysts.
While there may yet be a selloff ahead of Wednesday's sale of $41 billion in five-year notes and Thursday's $32 billion seven-year note auction, the largest gains on Monday were at the end of the curve.
Benchmark 10-year note and 30-year bond yields were up 3 basis points and 3.3 basis points, respectively.
The comparably modest climb in five- and seven-year yields' on Monday could be because large auction sizes have ceased to spook investors. "There has been enough real-money buying that we've managed to absorb whatever increases we've had in supply, without causing a commensurate jump up in yields," said Gautam Khanna, senior portfolio manager at Insight Investment, referring to the strong demand at auction recorded since 2018.
The five-year yield was last up 1.9 basis points at 2.388 percent. The seven-year yield was last up 2.7 basis points to 2.487 percent.
Financial markets in Australia, Hong Kong and many countries in Europe were closed on Monday for the Easter holiday.
Earlier on Monday, the Treasury Department auctioned off $42 billion in 13-week bills and $36 billion in 26-week bills.