Treasuries Fall Amid Gains for Risk Assets, EGB Selloff

  • Declines extended after 2-year auction yield tops expectation
  • Yields rise after testing 50-day moving averages Monday

Is It the End of the Bond Bull Market?

Treasuries fell Tuesday amid supply-induced weakness in most European government bond markets, a poor reception for an auction of 2-year notes and gains for U.S. stocks that pushed the S&P 500 to a record.

U.S. yields were higher by 5-8 basis points at about 3 p.m. in New York, erasing Monday’s declines that reflected concern about the economic impact of trade protectionism Trump administration is pursuing. The 10-year yield was higher by 7 basis points at 2.465 percent versus increases of 4-7 basis points for most euro-zone 10-year yields, which climbed into the European close amid a wave of syndicated deals including a French 20-year maturity, a Spanish 10-year and a U.K. 40-year.

  • Yields extended their climb after $26b 2Y auction was awarded at 1.210% vs when-issued yield of about 1.204% at the 1 p.m. bidding deadline; tail, largest for a 2Y auction since July according to Stone & McCarthy, was offset by increase in bid-to-cover ratio from last month’s multi-year low, and highest indirect award since May
  • Negatives for the sale included Fed and fiscal policy outlooks and recent history of tails in 2Y auctions, strategists said; positives included USD depreciation YTD that had potential to boost foreign demand
  • Preliminary CME futures open interest data suggest that Monday’s UST rally, in which 2Y, 5Y and 10Y yields tested their 50-DMAs, was driven in part by short-covering in eurodollars; open interest fell by 225k across front three packs

— With assistance by Edward Bolingbroke

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