Ten-year Treasury yields reached the highest since June before an unprecedented slate of note auctions and the last scheduled Federal Reserve speaker before next week’s policy meeting.
The Treasury Department plans to sell $24 billion of three-year notes and $20 billion of 10-year debt at 1 p.m. EDT. While the government has issued obligations of differing maturities on the same day, the simultaneous closings are unique for coupon note sales, said Aaron Kohli, fixed-income strategies at BMO Capital Markets Corp.
Adding to the day’s complexity for bond traders, Fed Gov. Lael Brainard is set to speak at 1:15 p.m. EDT, offering the final scheduled comments before officials go into their traditional quiet period ahead of their policy decision, slated for Sept. 21. Traders see a 28% likelihood of a boost, futures show, based on the assumption that the effective fed funds rate will trade at the middle of the new target range.
"It’s certainly unique and somewhat crowded,” said Mr. Kohli. “I do expect a slightly bigger concession.”
Yields on the benchmark 10-year note were little changed at 1.68% at 10:20 a.m. EDT, after reaching the highest since June 24, when the U.K.’s vote to leave the European Union roiled global markets. The price of the 1.5% security due in August 2026 was 98 11/32.
Government debt around the world plunged last week after the European Central Bank surprised traders by holding off on implementing more stimulus. U.S. 10-year notes ended last week with their worst two days since July, in a rout that sent yields up 0.14 percentage point.
Ms. Brainard is set to give remarks in Chicago. Fed Bank of Atlanta President Dennis Lockhart on Monday repeated his call for a “serious discussion” about raising rates this month, even after some recent disappointing economic data.
"The hardest thing right now is we’re in a Fed-speak environment,” said Michael Franzese, head of fixed-income trading at MCAP LLC, a broker-dealer. “You can’t deny the fact that the central bank and the Fed governors have an iron fist over us.”
In the repurchase-agreement market, where dealers borrow and lend securities, 10-year Treasuries were in demand before the auction.
The note’s repo rate was negative 3.4% at 10 a.m., according to ICAP. A negative level indicates traders are willing to pay to borrow the securities in exchange for loaning cash overnight. Typically repo rates are positive as the cash lenders in these deals receive interest.
Traders often short securities they’ve borrowed in repo, before auctions in part to profit if prices fall after the sale. In the repo market, that can leave the debt “on-special,” in trader parlance, meaning rates have slid amid rising demand.
“Given the point in the auction cycle, there isn’t a lot of these notes outstanding,” said David Keeble, head of fixed-income strategy at Credit Agricole. “This may help the auction as particularly the dealer bid should be good, as they need the paper to cover shorts.”
