Treasury Yields Resume Climb as Risk Appetite Lifts Equities
By: Elizabeth Stanton and Michael MacKenzie
(Bloomberg)–Treasury yields climbed Wednesday, with the rate on the 30-year bond reaching its highest level since mid-
month, amid signs that risk appetite is recovering after the recent banking turmoil. Those indications included gains for US stocks and a continuing parade of corporate bond sales after 20 investment-grade offerings were priced over the past two days — along with the first junk bond since early March. Four companies have entered the market Wednesday, including Allstate Corp.
“If you look across the board, at equities, rates and credit, there is a sense things are becoming a little calmer,” said Gregory Faranello, Head of US Rates Trading and Strategy for AmeriVet Securities. “So the Treasury market is repricing and there is room for yields to rise further.”
The Treasury also is selling new debt, a $35 billion seven-year note that concludes this week’s coupon auction cycle. Yields across the maturity spectrum held small advances after reaching session highs, trailing steeper rate increases in most European bond markets. The 30-year rose to 3.806%, its highest level since March 15. Expectations for US monetary policy were little changed on the day, assigning roughly one-in-two odds to another quarter-point rate increase at the Federal Reserve’s next meeting in May, and pricing in about 75-basis points of rate cuts by the end of the year.
Next week brings some of the first indicators of US economic performance in March including the ISM manufacturing and services indexes and employment data. “A backup in yields on stronger data over the coming week is probably an opportunity to reposition the other way,” Faranello said.