Treasury yields rise again as fears ebb, stocks rally
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Looks like investors have gotten their fill of playing it safe with U.S. Treasury bonds at paltry interest rates -- at least for the moment.
Yields on Treasury securities were up across the board Tuesday, the fifth straight increase, as fears of another economic calamity continued to retreat and as stocks staged another strong rally.
The Treasury auctioned $21 billion of new 10-year notes, and though demand was decent, it wasn’t as robust as bond bulls might have hoped. The Treasury got $3.09 in bids for every $1 in notes offered, down from the $3.35-to-$1 average of the previous four 10-year sales, according to CRT Capital Group.
Likewise, the government’s sale of $35 billion in three-year notes Monday saw weaker demand than at recent auctions of that maturity note, although investors still turned out in big numbers to get a yield of just 1.055%.
The Treasury sold the 10-year notes Tuesday at a yield of 3.119%. That’s about where the market yield on the existing 10-year notes was trading at 12:15 p.m. PDT, up from 3.04% on Monday and the highest since June 24.
The 10-year T-note yield (charted at left) dived as low as 2.93% on July 6, a 14-month low, as some investors continued the June rush for a place to hide amid recurring worries that the U.S. economy was headed for a “double dip” recession.
At that yield, “People were pricing in the end of the universe,” argues Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York.
One week later, the stock market has had a collective change of mind about the economic outlook, soothed in part by some upbeat second-quarter earnings reports. The end of the universe looks like it has been delayed again, and risk-taking has revived.
The Dow Jones industrial average was up 177 points, or 1.7%, to 10,393 at about 12:15 p.m. PDT on Tuesday, bringing the gain since July 2 to 700 points, or 7.2%.
Still, yield-hungry investors hoping to see a snap-back to the early-April level of 4% on the 10-year T-note probably won’t get their wish any time soon. There’s still plenty of concern about the U.S. economy’s next move. Greenhaus thinks profit-taking in Treasuries after the huge spring rally might push the 10-year yield to 3.25% in the near term.
The Treasury faces another test of investor demand Wednesday, when it will auction $13 billion in 30-year bonds.
-- Tom Petruno