Yields dip before Powell testimony, auctions
Benchmark 10-year yields reached 1.702% overnight, before dipping to be last at 1.651%.
“That must have been a trigger for some buying, or a psychological level,” said Tom Simons, a money market economist at Jefferies in New York.
The yields reached a one-year high of 1.754% last Thursday, meeting many analysts’ short-term target of 1.75%.
Bonds remain at risk of further weakness, however, with a slew of Fed officials due to speak this week and with looming supply.
“The market is still faced with a number of risk events that make some think that no one would really be all that aggressive in trying to step in to buy the market,” Simons said.
Federal Reserve Chair Jerome Powell is expected to be peppered with questions at a congressional hearing on Tuesday about the potential risks from the Fed’s super-easy policy including its bond buying program.
Yields rose after the Fed said last Wednesday that the economy is heading for its strongest growth in nearly 40 years, and central bank policymakers are pledging to keep their foot on the gas despite an expected surge of inflation.
Treasury Secretary Janet Yellen will also testify before Congress on Tuesday.
Investors will also be looking for any drop in demand at this week’s auctions after the Treasury saw very weak interest in a sale of seven-year notes last month, which led to selling across the Treasury curve.
The Treasury will sell $60 billion in two-year notes on Tuesday, $61 billion in five-year notes on Wednesday and $62 billion in seven-year notes on Thursday.
Treasury bill yields remained at depressed levels as money market investors struggle with a surge of cash and a drop in supply as the Treasury cuts its issuance of bills to pay down its cash balance.
One-month yields were last at 0.013%, after getting as low as 0.005% last Thursday. The cost of borrowing in the overnight repo rate was at 0.03% after trading in negative territory last week.
