Bond investors have been keeping a close eye on comments from Federal Reserve officials in recent weeks. But U.S. central bankers are entering a quiet period ahead of their next policy statement on March 17 – so for now, there will be a focus on the Treasury.
It will be a busy week for Treasury sales, which is important for two reasons.
First, investors should look to see if long-term U.S. yields have climbed high enough to attract more applications from global investors and pension funds at 10- and 30-year auctions. There are some indications of that already; 10-, 20-, and 30-year yields declined slightly Friday, with results moving with a shorter date.
Second, the Treasury auction calendar could add to (or ease of) recent lumps in funding markets, where some interest rates have turned negative in the past month.
In the past week, traders have been paying prices to capture an overnight 10-year Treasury in the market for repurchase agreements, where investors invest selling securities with an agreement to buy them back in the future. Investors usually pay interest to the trader who agrees to take securities out of their hands. But last week, there were investors earning interest to yield a current 10-year Finance note, pushing the rate as low as minus 4%, according to Bespoke Research.
That anomaly means investors have been betting against the 10-year masse Treasury – and could be bullish for the benchmark note.
“This only happens when the short base for a particular security is very large, with a great interest in being short leading to a huge demand for it in a repo,” wrote George Pearkes at Bespoke. “Another way of putting it: the ten-year-old Finance note is currently in a similar situation
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when it began surrendering in January. In our view, it is just one more piece of evidence that rate markets are very wrong with Treasury prices being overstated. ”
That level may move higher when the forthcoming 10-year notes hit the market. But in the broader repo market, rates can continue to go down into negative territory for weeks – if at less so levels. That’s partly because the Treasury’s bill supply is falling sharply, as officials halting sales means funding the Care Act before the debt ceiling returns. Lack of places to store short-term money has reduced short-term output, although the yield on bills themselves has not yet fallen below zero this year.
These supply-related pressures are one reason for Wall Street strategists, such as those at
Bank of America,
that the Fed may extend the quality of bond purchases at some point this year. Allowing a larger supply of bills on the market, and reducing the supply of marginal notes and bonds, could help avoid further market unrest, they say.
Fed officials have been looking down at how soon there are changes to their policy, however, and will not address further issues on the subject until March 17. So for a- now, readers can find the auction line (and more) below – there are estimates from Bloomberg, and all the time East:
Monday
Reic bile: The Treasury will sell $ 54 billion of 3-month bills and $ 51 billion of 6-month bills at 11:30 am. They will also sell $ 30 billion of 6-week “money management bills,” one of a series of bill ropes that was phased in in 2020 to fund the Affairs Act. Sales of other money management bills were halted a few weeks ago.
Finance auction allowance data: Want to know who was bidding for the “brutal” 7-year auction that put a spinning spin on February 25? Sadly, that data won’t come out until March 22. But data on investors bidding at another recent sell-off auction – the 20-year note fair on Feb. 17 – will be released Monday at 3f.
The data highlight any changes in demand for U.S. Finance over a period of time from different investment agencies. Since the 20-year Finance auction began in May 2020, investment funds have bought an average of 51% of all sales, while foreign investors have bought 11% and trading desks have bought 24%. It will be interesting to see if these ratios changed significantly as long – term yields skyrocketed last month.
3-year sale: Treasury will sell $ 58 billion of 3-year bonds at 1pm
Wednesday
Consumer Price Index Data: Economists are forecasting a 1.7% year-over-year rise over consumer prices in February, and a 0.4% increase from the previous month. While the CPI is not the Fed’s inflation measure, it is the market criterion for Inflation-protected Securities, or TIPS. The data is due at 8:30 am
Bank of Canada interest rate determination: Economists expect the central bank to maintain stable interest rates.
10-year sale: The Treasury will sell $ 38 billion of 10-year pounds at 1pm
Thursday
Unemployed claims: Economists expect initial claims to fall to 725,000 in the most recent week, from 745,000 the previous week. The data is due at 8:30 am
ECB interest rate determination: Central European bankers are expected to keep rates at normal levels below zero. “The focus on how hard the ECB pushes back will increase yields. Although the funding situation has tightened, we doubt that the ECB is willing to do enough to keep yields at bay, ”wrote strategists at TD Securities.
30-year sale: Treasury sells $ 24 billion of bonds at 1pm A weak auction such as recent 20- or 7-year sales could push long-term yields higher.
Friday
Representative prices: Economists expect delays from last month’s jump in wholesale prices; they forecast a monthly increase of 0.4% for February, compared to 1.3% the previous month.
Consumer awareness: The University of Michigan ‘s March Michigan opening reading is expected to come in at 78, up from 76.8 last month.
Write to Alexandra Scaggs at [email protected]