US 10-year treasury bond auction results were poor, and the yield was the highest since 2007

The Zhitong Finance App learned that the US government's latest monthly auction of 10-year treasury bonds was sold with the highest yield of 4.68% since 2007. This result is due to recent economic data showing that it is less likely that the Federal Reserve will cut interest rates further before the middle of this year.

The auction was worth $39 billion, and the yield was slightly higher than market expectations at 1 p.m. New York time (bid deadline). After data on service sector activity and job vacancies was stronger than expected, treasury bond yields rose by several basis points for various maturities.

Tracy Chen, portfolio manager at Brandywine Global Investment Management, said the data “strengthened the market's view that the US economy is strong and that interest rates are not clearly constraining the economy.”

Prior to that, at the end of September this year, traders were fully betting that the Federal Reserve would cut interest rates again before March next year, but now it has been postponed until the second half of this year before it is possible to cut interest rates.

Prior to the December employment data to be released on Friday, JOLTS job vacancies unexpectedly increased in November, and the ISM service industry index for December was also higher than expected. Among them, indicators related to corporate payment prices have jumped to the highest level since 2023.

Michael Cloherty, head of US interest rate strategy at UBS Securities, stated, “Market concerns about the high risk of inflation still exist, which has increased the term premium. Furthermore, market concerns about the need to finance budget deficits and changes from last year's expectations of a hard landing in the economy to a soft landing or even no landing have also affected interest rate trends.”

Although the yield on 10-year treasury bonds at the end of 2023 was once close to 5%, the results of this auction set the highest yield for newly issued 10-year treasury bonds since August 2007. In the period after the COVID-19 pandemic, the 10-year treasury bond auction yield was even below 1% several times. Wednesday's 30-year treasury bond auction is also expected to hit the highest yield since 2007.

The yield on 10-year treasury bonds rose from less than 4.2% a month ago to the current level, reflecting signs of economic resilience and inflationary stickiness. It is also driven by increased demand for financing after three interest rate cuts last year. This trend is consistent with global markets, such as the UK 30-year Treasury yield rising to its highest level since 1998 on Tuesday.

This increase in the issuance of 10-year treasury bonds has increased the number of bonds issued in November with a coupon interest rate of 4.25%. Currently, the maximum coupon rate for 10-year treasury bonds is 4.5%. However, the results of this auction show that the new 10-year treasury bonds issued in February are expected to hit the highest fixed interest rate in nearly 20 years.