Treasuries Fall as Fischer's Signal Follows Corporate Issuance

  • Six issuers bring offerings with 10-year or 30-year tranches
  • Slide deepens after Fischer predicts two more hikes in 2017

Treasuries fell Tuesday as corporate bond issuance resumed after a three-day hiatus, with seven domestic names slating offerings, six of which included a 10-year or a 30-year tranche, or both.

Yields were higher by three to four basis points points at 3 p.m. in New York after erasing declines of about 2 basis points. Session highs were reached after Fed Vice Chair Stanley Fischer said on CNBC he agreed with the median estimate of two more interest-rate increases this year. Treasuries had risen in early trading amid gains for many European bond markets and uncertain prospects for congressional action on federal spending.

  • Flows as yields reached session highs included a block trade in bond futures; separately, as Fischer was speaking 10Y futures volumes were heaviest of the day and sales of 10Y May 125.5 calls brought daily total to 17k
  • IG credit issuance totaled $11.4 billion; there was no domestic IG credit issuance Monday, and last week’s $24b haul was second lowest this year, which helped keep a lid on UST yields
  • $34b billion 5Y auction was awarded at 1.950% vs 1.945% WI yield at bidding deadline, sixth of past seven 5Y auctions to tail, according to Stone & McCarthy
  • Auction had support from futures positioning data suggesting speculators are in process of covering extended FV shorts; also, 5Y lagged in rally over past two weeks, causing 5s30s curve to pare around half of sharp steepening move spurred by March 15 FOMC meeting
  • Monday’s 2Y auction stopped 0.1bp higher than WI yield at bidding deadline; auction cycle concludes with $28b 7Y Wednesday
  • Trump administration’s failure to win House approval for health-care reform raises questions about whether agreement can easily be reached on a spending measure to keep federal government operating after current funding runs out on April 28; a shutdown “would certainly be a bullish event for the Treasury market and risk-off more broadly,” BMO strategists said in note
  • Earlier gains were pared further after Richmond Fed Manufacturing Index and Consumer Confidence Index, both for March, rose unexpectedly

— With assistance by Edward Bolingbroke

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