(Bloomberg) — US Treasuries retained modest losses on Wednesday as a record-sized $70 billion sale of five-year notes was met with decent demand, a sign that high yields are drawing investors to the deluge of supply.
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The auction of five-year Treasuries was awarded at 4.659%, slightly higher than the 4.655% yield in pre-auction trading at the 1 p.m. New York time bidding deadline — an indication that demand was a touch below expectations. Treasury bonds remained weaker on the day after the sale, helping the market to absorb the sale. Bond dealers underwriting the auction were left with 15% of the paper, below the recent average.
“The only remarkable aspect to me continues to be the large sizes going through,” said George Catrambone, head of fixed income at DWS Americas. “The tail was modest.”
That sale result followed a strong reception to the sale of $69 billion two-year notes on Tuesday, and leaves a $44 billion offering of seven-year notes on Thursday to complete a hefty slug of US government debt issuance.
This week’s auctions have so far found buyers after a month long selloff that saw yields rise to their highest levels of 2024 as data showed sticky US inflation and a resilient economy. Investors have been pruning back their expectations for Federal Reserve interest-rate cuts this year, now pricing in fewer than two quarter-point reductions. The strength of buyer demand suggests investors see shorter-dated Treasury yields trading around fair value.
“There is a bit of concern that inflation might be ticking up in the short-term and is stickier than people thought,” said John Fath, managing partner at BTG Pactual Asset Management US LLC. At the same time, “I don’t think the supply issue is helping. There is an issue with the sheer volume of these auctions, both here and in Europe.”
Read More: Treasuries Ebb With Global Bonds Ahead of Record US Auction
Once this week’s hefty slate of supply is digested, investors await GDP data Thursday and an important inflation reading at the end of the week that can help shape expectations for the Federal Reserve’s path.
Next week, the Fed meets and will release an update policy statement, followed by the monthly employment report that could also provide more clarity about the economy and the policy rate path from here.
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