By Karen Brettell
NEW YORK (Reuters) – Yields on longer-term U.S. Treasury bonds rose to multi-month highs, outpacing a rise in shorter-term yields, with part of the disparity reflecting anticipation that the new Trump administration will have to change the current orientation towards trust. more on short-term debt, traders say.
President Joe Biden’s Treasury Secretary, Janet Yellen, increased her sales of Treasuries, debts maturing in a year or less, which have drawn strong demand from money market investors.
But it brought the bills’ share above recommended levels for the overall outstanding debt, a process that will likely need to be addressed by President-elect Donald Trump’s nominee for Treasury chief, Scott Bessent.
“The market is creating more term premiums on the long end to account for the fiscal situation, the deficit and potentially a lot more issuance on the long end of the curve as they unwind Yellen’s policy,” said Dan Mulholland, head of rates. – trading and sales at Crews & Associates.
Ten-year yields were lower than two-year bonds until about September and have been rising at a faster pace since June. Ten-year yields rose to 4.73% on Wednesday, their highest level since April, while two-year yields remained relatively stable at 4.27%.
Traders say the ample supply of short-term debt helped keep the U.S. Treasury yield curve inverted longer than usual, from around July 2022 until September, a period that is now inverting.
“It’s kept the yield curve inverted, and now I think there’s a feeling that that’s not the right way to do it,” said Tom di Galoma, head of fixed income trading at Curvature Securities .
The expected increase in longer-term debt isn’t the only factor pushing yields higher. Trump’s policies are expected to boost growth and potentially inflation, leading to higher interest rates.
The Treasury often uses the sale of short-term debt as a sort of shock absorber that it can increase or decrease when faced with large swings in its borrowing needs. But longer term, market watchers say it’s unwise to rely too much on short-term debt because it increases refinancing risks if market conditions change.
Outstanding Treasury debt jumped to $36 trillion from $23 trillion at the end of 2019, with the government relying more on debt to finance its spending and close its budget deficit, which analysts say will continue to get worse for the foreseeable future.
Treasury bills now represent 22% of the debt, above the 15 to 20% recommended by the Treasury Borrowing Advisory Committee.
