Key facts
- US Treasuries fell on Thursday, marking the second consecutive day of rising yields.
- Rising oil prices, with Brent crude futures up 4.7% and US crude futures up 4.6%, fueled inflation concerns.
- Investors are anticipating a $22 billion auction of 30-year bonds.
- The benchmark 10-year Treasury yield increased by 2.8 basis points to 5.305%.
- The 2-year Treasury yield rose 5.7 basis points to 4.821%.
- Fed Governor Christopher Waller indicated that further rate hikes may be necessary.
US Treasuries weakened on Thursday, pushing yields higher for a second consecutive session, as rising oil prices fueled inflation concerns and investors eyed a 30-year bond auction for fresh clues on appetite for long-term debt.
In late morning trading, the benchmark 10-year yield was up 2.8 basis points at 5.305%, after hitting a 24-year high on Wednesday. US 30-year yields were flat to slightly higher at 5.666%. Rising bond yields mean Treasury debt prices are lower.
On the shorter end of the curve, US 2-year yields, which reflect interest rate expectations, rose 5.7 bps to 4.821%. Tom di Galoma, managing director of global rates trading at Mischler Financial, noted that Thursday's rise in yields appeared more orderly than earlier in the week, attributing it partly to short-covering and positive spillover from European markets.
Oil prices remained a significant driver of Treasury yields. Brent crude futures were up 4.7% at $104.87 a barrel, and US crude futures gained 4.6% to $92.30, both reaching their highest levels in over a week amid persistent worries about Middle East supply following attacks on shipping. Ian Lyngen, head of US rates strategy at BMO, wrote that the market is focusing on the inflationary implications of the energy shock, largely ignoring potential demand destruction.
The auction of $22 billion in 30-year bonds was also in focus, following a robust sale of 10-year notes on Wednesday. US 30-year yields have risen more than 30 basis points since the last auction in September. J.P. Morgan expects the auction to proceed smoothly, citing fair valuations and potential support from foreign demand due to volatility in European sovereign debt markets.
Elsewhere, the yield curve flattened as markets reassessed the need for further Federal Reserve tightening. Fed Governor Christopher Waller stated on Thursday that additional rate hikes will likely be needed to bring inflation to the Fed's 2% target, though he noted flexibility in the pace of increases. His comments pushed 2-year yields higher.