WASHINGTON- US Treasury yields on Wednesday climbed after an auction of five-year notes showed weak demand and following data indicating that new-home sales accelerated in September, affirming market expectations of prolonged high rates heading into 2024.
The yield on benchmark 10-year Treasury notes was up 11.5 basis points (bps) at 4.954 percent . It hit a 16-year high of more than 5 percent on Monday.
New home sales rebounded 12.3 percent to a seasonally adjusted annual rate of 759,000 units last month, the Commerce Department said on Wednesday. August sales were revised up to 676,000 units from the previously reported 675,000 units.
“Data continues to come in at a much more robust pace than most people would have thought it was going to be sitting at 5.5 percent through this cycle,” said Tim Sauermelch, head of global macro trading at SEI Investments.
“The fact that the economy is so resilient brings into question what rate of interest is actually restrictive,” he said.
In addition, mortgage rates approaching 8 percent could curb last month’s strong demand. Along with continued inflation and US economic strength, that may increase the odds the US Federal Reserve keeps interest rates elevated heading into next year to curb persistent inflation.
“The Fed has no choice but to continue to emphasize the message that interest rates are going to remain high for an extended period of time until they make enough progress on inflation,” said Hans Mikkelsen, head credit strategist at TD Securities.
A weak Treasury auction on Wednesday of $52 billion in US five-year notes also boosted yields. The auction stopped at a high yield of 4.899 percent , above the expected rate at the bid deadline, which suggested investors demanded a premium to buy the note.
Total bids were about $123 billion for a bid-to-cover ratio, a measure of demand, of 2.36, lower than the 2.52 seen previously and the 2.52 average. It is the weakest since September 2022, analysts said.
US five-year yields were last at 4.92 percent up 9.4 bps.
“The Treasury markets going to stabilize, but it kind of shows you the auctions continue to be sloppy,” said John McIntyre, managing director at PGIM Fixed Income.”
“The markets struggling with new supply for now, and bonds yield moving higher and equities moving lower is not a great environmental for financial assets.”
The 30-year Treasury bond yield was up 12.9 bps at 5.091 percent.