Wall Street is preparing for a high-rate 30-year bond auction as Treasury bonds stabilize.
Wall Street is locked in on a $22 billion 30-year bond auction on Thursday, a major event that has everyone from bond managers to economists watching the numbers like hawks.
This is not just another sale of government debt; it is one that could blow up how much trust remains in U.S. long-term borrowing. It follows weeks of brutal volatility in global bond markets, especially at the long end of the curve.
On Monday, U.S. Treasury bonds managed to claw back some positions after last week's losses. Yields fell by two to three basis points across the board, bouncing back from Friday's spike when U.S. employment data came in stronger than expected, according to Bloomberg data.
These unexpected data instantly raised yields. But with a calmer Monday and a lack of fresh economic news, attention is now shifting to what comes next — the consumer price index report on Wednesday and the auction on Thursday, both of which are expected to hit like a blow.
The big problem is that long-term debt looks shaky. Yields on these bonds have been rising steadily since April. On May 22, the yield on 30-year bonds reached a peak of 5.15%, not seen since 2023. By Monday, it had dropped to 4.95%, but that is still a red flag. The yield on 10-year bonds changed synchronously, falling to 4.48%, which is more of a breather than a recovery.
Lauren van Bilen, a fixed-income portfolio manager at Allspring Global Investments, said that the 30-year bond auction will determine market sentiment for the remainder of June. 'This will be a key moment and really set the tone for all of June,' Lauren said on Bloomberg TV. 'We know how much concern long-term funding is causing.'
Lauren is not the only one on edge. Mike Riddell, portfolio manager at Fidelity International, said he has already moved to a steeper position that benefits when long-term bonds lose more value than short-term ones.
'It's no longer about interest rates, but about the fiscal story and the dynamics of supply and demand,' Mike said. He is concerned not only about rising yields but also about the silence of politicians. 'What is really concerning,' he said, 'is that there seems to be no change in policy against the backdrop of these market movements.'
The shift away from monetary policy as the main driver is a big deal. For many years, investors have been obsessed with interest rate decisions. Now they are more focused on whether the government's massive borrowing and uncontrolled spending are sustainable. The auction of 3-year bonds this Tuesday and 10-year bonds on Wednesday will provide more clues, but all eyes are still on Thursday.
Also on Wednesday, the inflation report will be released, and this could spoil everything. According to a Bloomberg economist survey, the consumer price index is expected to rise from 2.3% to 2.5% year-on-year in May. This is enough to make anyone holding long-term bonds sweat.
Kathleen Brooks, director of research at XTB, stated in her note that inflationary pressure could dampen the market's risk appetite and even limit any dollar gains. 'Especially if it jeopardizes the U.S. 30-year Treasury auction on Thursday,' she added.
Wall Street is watching these auctions more than ever. This includes Jack McIntyre, a portfolio manager at Brandywine Global Investment Management. Jack said that this week's bond sales will serve as a live indicator of how the market is feeling. 'All auctions will be viewed through the lens of a market sentiment test,' Jack said.
What does he think about 30-year bonds? 'It seems that 30-year U.S. Treasury bonds are the least loved bonds.'
These bonds are becoming expensive to issue. The U.S. government is borrowing more, spending more, and now paying more interest. This combination has pushed the yield on 30-year bonds to its highest levels in nearly 20 years. A slight dip below 5% on Monday doesn't matter much when the overall trend is still upward.
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