Ahead of big bond sales, U.S. pledges deficit restraint
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Treasury Secretary Timothy F. Geithner is trying to convince China and other foreign buyers of U.S. debt that they don’t have to worry about losing their shirts if they buy bonds at current yields.
Ahead of another huge sale of Treasury debt this week, Geithner opened this week’s high-level talks with Chinese leaders in Washington by reiterating that the U.S. was committed to ‘reducing the federal deficit to a sustainable level by 2013.’
China and other major U.S. creditors naturally are fearful that interest rates could soar if Washington keeps borrowing at this year’s record pace. Nobody should be buying a long-term bond yielding, say, 3% interest if they expect that new bonds will be paying double that rate in a year or two.
Yields on longer-term Treasury bonds have rebounded this month as the stock market has rallied, drawing money out of the bonds. Traders also have been pushing up yields ahead of this week’s Treasury sales.
The auctions begin with today’s sale of $6 billion in 20-year inflation-protected bonds. That sale will be followed by an auction of $42 billion in two-year notes on Tuesday, $39 billion of five-year notes on Wednesday and $28 billion of seven-year notes on Thursday.
The jump in yields over the last two weeks is giving investors who are bearish on the economy a chance to buy Treasuries closer to their spring peak yields reached in early June.
The five-year T-note yield hit 2.93% on June 8 -- then dived as low as 2.22% by July 10 amid fresh concerns about the economy. The five-year note is trading at 2.59% today, up from 2.53% on Friday.
The seven-year T-note is at 3.28% today, up from 2.90% on July 10. The two-year note is at 1.05%; it yielded 0.90% on July 10.
The longest-term Treasury issues have seen the sharpest moves up in yield. The 10-year T-note is at 3.71% today, up from 3.66% on Friday and 3.31% on July 10. The 10-year yield had reached an eight-month high of 4% on June 10.
-- Tom Petruno