U.S. Treasury yields on Thursday erased much of the prior day's declines, returning to their upward trend despite the Treasury Department's Wednesday announcement of liquidity support for long-dated notes and bonds.
The rise pointed to persistent pressure on long-term borrowing costs for the world's largest economy, with U.S. sovereign debt now surpassing $40 trillion for the first time.
The U.S. Treasury Department on Wednesday said it would "at least" double the size of liquidity support buybacks for longer-dated Treasuries, which then saw sharp drops in yields on 10-year, 20-year and 30-year Treasuries, helping ease a global selloff in sovereigns.
Meanwhile, U.S. President Donald Trump warned of "economic warfare" against any country that offers support to Iran as the United States seeks to resolve a war it launched in February along with Israel that has sent shocks through oil supply chains, driving up prices and putting upward pressure on inflation.
Robert Tipp, chief investment strategist and head of global bonds at PGIM, said that even if yields had reversed some of their declines, the Treasury did appear successful in blunting the upward drive in long-dated yields.
"I think (Thursday's) price action in the market in some respects is ratifying the decision," Tipp said, noting that, given the fundamentals of inflation and rising U.S. sovereign debt, actually pushing down long-term yields is "not a reasonable objective."
There was little economic data to move markets in late summer trading. The Labor Department reported that weekly first-time claims for unemployment benefits were in line with economists' expectations at just over 200,000.
Later Thursday, the United States is due to auction 30-year inflation-protected bonds.
The yield on the benchmark U.S. 10-year Treasury note US10YT=RR was last up 4.5 basis points to 4.698%. The yield on the 30-year bond US30YT=RR rose 4.5 basis points to 5.239%.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB, seen as an indicator of economic expectations, was at a positive 50.2 basis points.
The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 1.5 basis points to 4.194%.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=TWEB was last at 2.304% after closing at 2.289% on Wednesday.
The 10-year TIPS breakeven rate US10YTIP=TWEB was last at 2.316%, indicating the market sees inflation averaging about 2.3% a year for the next decade.
TLT•
