With yields climbing, Treasury starts big bond sales today
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As the federal government prepares to launch the next phase of its banking-system rescue, financing the fix is getting more expensive.
Yields on Treasury bonds rose across the board on Monday, reaching the highest levels since November, ahead of the government’s auctions this week of a record $67 billion in new securities. The sales will raise cash for the financial-system bailout and for the fiscal-stimulus plan that Congress now is debating.
The annualized yield on the benchmark 10-year T-note rose to 3.02% on Monday, up from 2.98% on Friday. It was the first time since Nov. 25 that the yield has topped 3%; it has risen nearly a full percentage point since late December.
The auctions begin today with the sale of $32 bilion of three-year T-notes, followed by a $21-billion 10-year note sale on Wednesday and a $14-billion 30-year bond sale on Thursday.
It isn’t unusual for bond traders and investors to push up market yields ahead of big auctions. Given the huge volume of bonds the government wants to sell, buyers want as high a yield as they can get to absorb the supply.
The question is whether Treasury yields are reaching at least a near-term peak, or whether investors will continue to demand richer returns to buy Uncle Sam’s debt -- adding to the ultimate cost of the financial and economic bailouts. . . .
Gary Pollack, head of bond trading at Deutsche Bank Private Asset Management in New York, thinks there’s room for Treasury yields to head down again soon as the recession wears on and as many investors remain fixated on asset safety. Once this week’s auctions are out of the way, he says, ‘I think the market will focus back on the fundamentals of the economy, which are bleak.’
The last time the Treasury sold 10-year notes, on Jan. 8, investors flocked to buy them. Still, that didn’t stop market yields from resuming their climb after the sale.
One growing challenge to the Treasury’s need for financing is that many investors are looking for higher yields, and are finding them in the corporate and municipal bond markets. Computer networking giant Cisco Systems, for example, raised $4 billion on Monday by issuing long-term bonds, including 10-year securities that paid investors an annualized yield of about 5%.
All told, U.S. companies have sold $182 billion in bonds so far this year, up 42% from the same period a year ago, according to Bloomberg News data.
It’s a positive sign for financial markets that investors are hungry for corporate and muni bonds. It’s telling us that the credit crunch is loosening its grip.
The irony is that bond market analysts typically have worried about the government’s borrowing needs ‘crowding out’ the needs of private borrowers. For the moment, it looks like Uncle Sam is the borrower who’s feeling crowded.
-- Tom Petruno