NEW YORK- US Treasury yields were mixed on Monday, with those on the long end of the curve modestly higher and the direction in rates having no conviction overall, as investors looked ahead to a slew of events and economic data this week.
The bond market is bracing for the Treasury’s $125 billion new supply of Treasuries this week, starting with the sale of $58 billion in US three-year notes on Tuesday. The government will also sell $42 billion in 10-year notes on Wednesday and $25 billion in 30-year bonds on Thursday.
The auction comes after remarks made over the weekend by President Donald Trump that his administration is examining Treasury debt payments for evidence of possible fraud, sparking worries about demand for Treasuries at the auction.
Trump, who spoke to reporters aboard Air Force One on Sunday, suggested that the $36 trillion US debt load might not be that high. “Some of that stuff that we’re finding is very fraudulent, therefore maybe we have less debt than we thought.”
Some market participants, however, downplayed Trump’s comments as they awaited further clarification on the issue.
“There’s a lot more going on, not just Trump, that will explain the small move we’re seeing today. My sense is that something is probably lost in translation in the communication relayed to the president,” said Greg Faranello, head of US rates strategy at AmeriVet Securities in New York.
“He doesn’t really understand the nuances of the Treasury market. Trump is the president but he’s not expected to know everything. He gets a lot of information and he’s trying to understand it, and he’s also trying to trust the people around him.”
In afternoon trading, the yield on the benchmark 10-year Treasury note edged up 1.2 basis points (bps) to 4.499 percent, while US 30-year yields were also higher, up 2.3 bps at 4.714 percent
On the front end of the curve, US two-year yields which are typically tied to policy moves by the Federal Reserve, were flat at 4.273 percent.
Stan Shipley, managing director and fixed-income strategist at Evercore ISI in New York, said demand could be weaker at auctions this week following Trump’s comments.
“If I’m an investor, do I really want to step forward here until I understand what’s going on?”
It was not clear whether Trump was referring to debt service or other government payments made by the Treasury Department.
“What he may be referring to are things like Medicare, or education, or aid … that may not have been exactly done right,” Shipley said.
“And to pay for those ‘frauds,’ we issued Treasuries. Trump is probably wondering: Can I get out of honoring those Treasuries that paid for the fraud?”
The White House and the Treasury Department were not immediately available for comment when contacted by Reuters.
With little in the way of clarity over what Trump may have meant, the focus in markets remained on the economy and what the Fed might do with interest rates in the coming months, after having left them unchanged at the January meeting.
US rate futures priced in on Monday about 39 bps of easing or just one rate cut this year, with about a 54 percent chance of a second quarter-point reduction, according to LSEG estimates.
Tariffs, meanwhile, remained in focus with Trump announcing 25 percent duties on steel and aluminum imports into the United States, on top of existing levies on the products.
Investors are also looking to this week’s events led by Fed Chair Jerome Powell’s biannual monetary policy report to the Senate Budget Committee on Tuesday and the House of Representatives Financial Services Committee on Wednesday.
“Powell is probably going to tell you that policy is in a good place and the Fed doesn’t need to be in a rush in cutting rates because the economy has done fairly well,” said AmeriVet’sFaranello.
The data calendar also includes reports crucial to monetary policy: consumer and producer price index numbers on Wednesday and Thursday as well as retail sales on Friday.
In other parts of the bond market, the yield curve steepened marginally, with the spread between two-year and 10-year yields at 22.5 bps after five straight days of flattening, or spreads declining. On Friday, the yield curve was 20.2 bps.
Yield curves typically steepen, with an upwardly sloping shape, in the midst of an easing cycle.
