Yields curve steeper going into busy auction, earnings week

NEW YORK: The Treasury yield curve steepened on Monday, the start of a busy week in the financial market in which $237 billion of new debt will be auctioned off and more than a quarter of S&P 500 companies will report first-quarter earnings.

The spread between the two- and 10-year government note yields, the most common measure of the yield curve, rose 1.3 basis points from last close to 19.2 basis points. The yield curve steepens when longer-dated yields rise faster than shorter-dated yields, suggesting bullish investor sentiment.

Benchmark 10-year note and 30-year bond yields were up 2.3 basis points and 2.7 basis points respectively.

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.

Going into the auctions of $41 billion five-year notes and $32 billion seven-year notes this week, there may be a selloff at those maturities. The five-year yield was last up 1.2 basis points at 2.381 percent. The seven-year yield was last up 1.9 basis points to 2.479 percent.

Despite the $40 billion auction of two-year notes this week, the note yield was anchored, up just 0.3 basis point. The two-year yield has fallen this year as the Federal Reserve has indicated it will not raise interest rates in the near term, which may be determining the yield even with an influx of supply.

Financial markets in Australia, Hong Kong and many countries in Europe are closed on Monday for the Easter holiday.

"Today is a holiday overseas and there's not much in the way of data, so I presume we're going to be trading in line with the futures market and ahead of the auctions this week," said Rajappa.

More than a quarter of S&P 500 companies are scheduled to report earnings this week, including tech stocks Facebook Inc and Microsoft Corp, as well as Coca-Cola Co and Verizon Communications Inc. So far, corporate earnings have largely beat analyst expectations, which were low after interest-rate and recession risks roiled financial markets in January.

Later on Monday, the Treasury Department will auction off $42 billion 13-week bills and $36 billion 26-week bills.