Longer-dated US Treasuries rose as investors readied for a $22 billion auction of 30-year debt, which stands to test demand as yields linger near multi-decade highs.
Thirty-year bonds advanced on Thursday after US President Donald Trump said he’ll hold off on attacking Iran again until after the midterm elections. That leaves yields down four basis points at 5.63% — off their highest levels since 2002 — ahead of the Treasury Department 30-year sale, which follows a standout auction of 10-year notes earlier this week.
“The turnaround today may be a sign of end-user demand strengthening, which was especially evident in yesterday’s 10-year auction,” said Angelo Manolatos, rates strategist at Wells Fargo Securities.
Longer-term debt from around the world has been selling off in recent months as angst has built up around the Iran war’s effect on energy costs and the fallout for inflation. Fiscal concerns have also added to the pressure, with 30-year Treasury yields knocking out a series of milestone levels as they surged.
On Thursday, Trump cited in a social media post · what he said were “productive discussions” with Iran, vowing not to further attack the nation until after the US midterms on Nov. 3. Long-dated yields extended their declines as oil prices fell from an earlier peak around $105 per barrel.
“There was a lot of rumbling about potential pre-midterm strikes, so this takes some pressure off near-term oil,” said Izaac Brook, US rates strategist at RBC Capital Markets. “This is just a near-term removal of Iran escalation tail risk.”
Short-end yields also pulled back. Two-year yields — which are more sensitive to the Federal Reserve’s path — were higher by just one basis point to 4.79% after earlier rising as much as five basis points.
Traders are still pricing in a roughly 20% chance that the US central bank boosts interest rates later this month and are fully pricing in a move by year’s end.
Auction Ahead
A $39 billion sale of 10-year notes on Wednesday drew a yield well below what had been prevailing in the market — an indication that these elevated levels are starting to entice buyers. Non-dealer investors took down a record 97.5% of the auction.
The robust result came ahead of the 30-year bond auction set for later on Thursday. That sale will be followed by a buyback in which the Treasury will purchase as much as $6 billion of bonds maturing in 20 to 30 years, the fourth such operation since the department expanded the program as long-term yields surged to multiyear highs.
To Molly Brooks, rates strategist at TD Securities, yields appear to be finding some resistance levels that are leading in buyers.
“If we are able to see the rally hold for a few days, I think that would bring even more buyers back into the market that have been waiting for the greenlight,” Brooks said.