Bond traders respite from flattening curve may prove fleeting

Bloomberg/Brian Chappata/4-21-2018

“Bond traders agonizing over the flattening U.S. yield curve got a bit of a break last week. But with a flood of Treasury supply about to hit the market, they’ll have little time to catch their breath. The U.S. will issue a combined $96 billion of two-, five- and seven-year notes this week, the largest slate of fixed-rate coupon sales since 2014, according to BMO Capital Markets. After a stretch dominated by Federal Reserve speakers, the offerings are likely to refocus traders on the prospect of ever-larger auctions to cover swelling budget gaps.”

MK note:  As we reported a little over a week ago, the federal government has added $1.275 trillion to the national debt over the past twelve months, so it is not surprising to see the big numbers continuing to be posted at the Treasury auctions.  There may come a time when suddenly demand dries up and then it will be interesting to see how the markets react.  Will this week be the week?  Gennadiy Goldberg, senior U.S. rates strategist at TD Securities is quoted in the Bloomberg article linked at the top: “There’s a lot of supply coming, which is probably the understatement of the century.”  All of which should make for an interesting week (as the 10-year note flirts with the psychologically important 3% level.

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