Andrew Harrer/Bloomberg
Treasuries slipped across the curve Tuesday, pushing yields two to four basis points higher and the 30 year approaching 5% for the first time since May.
Yields have been rising as investors pare bets on the Federal Reserve’s interest-rate cuts following a jobs report that revealed a surprisingly resilient US labor market. Interest-rate swaps show traders leaning toward a cut in September with two, quarter-point reductions by the end of the year.
“It’s been typical to see consolidation coming out of the employment numbers into long end supply,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. “Our mantra on lower yields remains the same: It needs to be economic, Fed driven.”
Earlier on Tuesday, long-dated Japanese bonds sold off, sending a fresh wave of jitters through global markets and pushing yields on German bunds higher.
Long bonds are suffering as many of the traditional buyers withdraw from the market even as supply expands. Such securities tend to attract a smaller pool of investors due to their greater interest-rate risk, with moves often exacerbated by lower liquidity.
Last week, gilts sold off rapidly on concern about the nation’s fiscal outlook. This week, Japan is in focus with investors weighing if politicians will increase spending in the run-up to July 20 elections in the upper house. The yield on 30-year securities there approached a record, reverberating through other markets.
“Long rates are ugly across the globe, all bear steepening,” said Andrew Brenner, head of international fixed income at NatAlliance Securities.
At the same time, Treasuries are caught up in a mix of sometimes contradictory risks surrounding Donald Trump’s trade tariff drama, US fiscal policy and the outlook for the Fed.
Trump’s tax-and-spending bill, which he signed last week, is projected to widen the deficit, keeping bond supply concerns in focus. The week’s Treasury auction cycle of three- and 10-year notes and 30-year bonds kicks off later on Tuesday.
Trump on Monday unveiled letters threatening key trading partners with high tariff rates, though he’s left room for negotiations to continue and so far there’s little sign of read-through to the US economy.
“Fears that uncertainty over tariffs would cause companies to cut back on hiring have so far proved unfounded,” said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management.
