Bond Investors Again Step Back From U.S. Debt on Trump Policies

  • Treasuries slide on concern victor’s plans will spur inflation
  • Foreign appetite fell at both 10- and 30-year auctions

El-Erian: 'Something Big' on Both Sides of the Atlantic

The Treasury’s $15 billion 30-year bond auction Thursday again showed waning investor appetite for U.S. debt as President-elect Donald Trump is seen as ramping up spending to boost the economy, potentially widening the budget deficit and stoking inflation.

A gauge of demand for the 30-year obligations known as the bid-to-cover ratio fell to 2.11, the lowest since February. Buying from indirect bidders, a category that includes foreign central banks, was the lowest since 2015. It mirrored the 10-year note auction Wednesday, which saw the smallest demand since 2009 as Trump’s victory spurred the biggest selloff in five years.

Treasuries have tumbled the past two days amid speculation the Republican will ramp up spending to spur growth, accelerating the pace of price gains. During the campaign, Trump pledged to cut taxes and to put as much as $500 billion toward infrastructure. Benchmark 10-year yields climbed above 2 percent for the first time since January and the difference between two- and 30-year yields touching the widest since January.

Global investors stepped back amid concern that Trump’s foreign-policy and fiscal agendas lacked definition, reducing confidence, said Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings in New York. A persistent decline in demand would risk hamstringing the plans of the next president. The real-estate magnate’s economic proposals include projects that would boost the federal debt by $5.3 trillion, according to estimates from the nonpartisan Committee for a Responsible Federal Budget.

Overseas Sellers

“They’re basically selling Treasuries because they really don’t know what Donald Trump has in store for them,” di Galoma said. “Most of the activity is coming from overseas. They’re not sure what he’s all about.”

Benchmark 10-year note yields rose nine basis points, or 0.09 percentage point, to 2.15 percent at 5 p.m. in New York, according to Bloomberg Bond Trader data. The 2 percent security due in November 2026 fell about 7/8, or $8.75 per $1,000 face amount, to 98 21/32.

The yield on 30-year bonds extended its climb after the auction, increasing 11 basis points to 2.95 percent, after jumping 23 basis points on Wednesday, the most since October 2011.

“The volatility in itself makes it more difficult generally” to auction debt, said Antoine Bouvet, a London-based rates strategist at Mizuho International Plc. “Particularly given the volatility we had yesterday and the focus on Trump’s policy, there’s been a big steepening of the curve.”

Investors from Pacific Investment Management Co. to TIAA Global Asset Management see the surge in long-term yields that came after Trump’s election as a sign inflation will quicken. That means Federal Reserve policy makers may act more swiftly to raise borrowing costs than they have in 2016, when they held off time and time again after increasing their target rate to a range of 0.25 percent to 0.5 percent in December 2015.

Billionaire investor Stan Druckenmiller said in an interview on CNBC Thursday that he’s short bonds globally in a bet on rising interest rates. He said that while the budget deficit will be higher, his bond holdings reflect his view of stronger economic growth.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE