Alice Gledhill and Sujata Rao
3 min read
(Bloomberg) -- The US government bond market stabilized — following one of its worst days this year on Friday — as investors counted down to an auction of 30-year securities that will offer a fresh test of demand for the beleaguered securities.
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An early rally paced by gains for European bonds got back on track after stalling briefly in early US trading on Monday, leaving yields across maturities lower by two to five basis points. They retain most of the increases sustained Friday, when stronger-than-expected US employment data prompted traders to traders dial back Federal Reserve interest-rate cut expectations.
A quieter start to the week for economic data is shifting attention to US and China trade talks in London, and events later this week, including consumer inflation on Wednesday and the debt sale the following day. While scheduled bond auctions are typically routine affairs, Thursday’s $22 billion offering will be particularly scrutinized given the recent volatility in long-dated global bonds. Yields have soared in recent weeks amid growing concern over major governments’ spiraling debt and deficits.
“The 30 year is a kind of tail risk type of rate,” said Jeffrey Klingelhofer, portfolio manager at Aristotle Pacific Capital LLC in Newport Beach. “Concerns over deficit spending” matter far more for the long end than “the seven to 10 year and certainly the shorter part of the curve,” he said.
The US 30-year yield has been marching higher since early April, hitting a peak of 5.15% on May 22, the highest since 2023. It was down around three basis points at 4.94% on Monday, while the 10-year yield slid to around 4.47%.
“This is going to be key and really set the tone into June as a whole,” said Lauren van Biljon, fixed income portfolio manager at Allspring Global Investments, on Bloomberg TV, about the 30-year Treasury auction. “We know how much anxiety there is around longer-term financing.”
Mike Riddell, a portfolio manager at Fidelity International, said he’s entered a steepener position, which profits from long-dated bonds underperforming shorter ones. Like PGIM Fixed Income, he said the forces driving ultra-long bonds have shifted away from monetary policy.
“It’s no longer about policy rates, it’s all about the fiscal story and demand supply dynamics,” Riddell said. It’s “really concerning” that there “doesn’t appear to be any change in policy on the back of these market moves,” he added.
