The 10-year Treasury Yield Jumps as Traders Watch Treasury's Quarterly Refunds

On Monday morning, Treasury yields showed a broad increase, primarily led by the 5- to 10-year rates, as investors awaited information about the U.S. government's borrowing needs for the fourth quarter.

‍

Here's the current situation:

• The 2-year Treasury yield rose by 5.7 basis points, reaching 5.067% from 5.01% on Friday. It's important to note that yields move inversely to bond prices.
• The 10-year Treasury yield jumped by 5.4 basis points, hitting 4.9% from 4.846% on Friday.
• The 30-year Treasury yield was up by 3.9 basis points, standing at 5.062% from 5.023% on Friday.

‍

The driving factors behind these market movements are as follows:

‍

1. Yields increased on Monday morning in anticipation of the Treasury's quarterly refunding documents set to be released this week, with initial announcements scheduled for today.
2. The bond market is feeling uneasy about the U.S. government's growing deficit, given the information Treasury shared on July 31, which revealed the intention to borrow a substantial $1.007 trillion in the third quarter.
3. On Tuesday, the Bank of Japan is making its latest monetary policy decision, and any adjustments to its yield-curve control policy could impact the fixed-income market.
4. Wednesday will bring additional details from the U.S. Treasury's quarterly refunding process, including information on upcoming auction sizes, potentially overshadowing the Federal Reserve's policy announcement on the same day.

‍

Market expectations indicate a 98.2% probability that the Federal Reserve will keep interest rates steady within the 5.25%-5.5% range on Wednesday. The likelihood of a 25-basis-point rate increase to a range of 5.5%-5.75% by December stands at 24.5%, but this may change based on Federal Reserve Chair Jerome Powell's statements during his post-meeting press conference.

‍

Furthermore, the Bank of England is anticipated to leave its rates unchanged on Thursday, and Friday will bring the U.S. nonfarm payrolls report for October.

‍

Analysts from BMO Capital Markets emphasize the significance of this week in the Treasury market due to various factors, including financing estimates, refunding announcements, the Federal Open Market Committee (FOMC) decision, and the payrolls report. Additionally, they mention the upcoming update from the Bank of Japan, with expectations of a shift toward a less accommodating policy stance, particularly regarding yield curve control. The impact on U.S. rates will depend on whether this move by the Bank of Japan will push 10-year yields back toward 5.0% or be seen as a reason to buy bonds.

‍