By Eliza Ronalds-Hannon and Lukanyo Mnyandahttp://www.bloomberg.com/news/articles/2016-11-09/trump-faces-instant-23-billion-treasuries-market-referendum
(Bloomberg) --A $15 billion Treasury 30-year bond auction Thursday will offer fresh insight into global sentiment toward U.S. debt under the pending stewardship of President-elect Donald Trump one day after traders greeted his election by inflicting the biggest selloff in five years.
The yield difference between five- and 30-year securities widened Wednesday to the most since February, while a sale of 10-year notes drew the weakest demand since 2009, with interest from international buyers particularly tame. Indirect bidders, a category that includes foreign central banks, took on just over 50 percent, compared with an average of around 65 percent for the previous 10 sales.
Treasuries tumbled Wednesday amid speculation the Republican will ramp up spending to boost the economy, potentially widening the budget deficit and stoking inflation. During the election campaign, Trump pledged to cut taxes and to put as much as $500 billion toward infrastructure. Benchmark 10-year yields climbed above 2 percent for the first time since January and the difference between two and 30-year yields reached the widest since February.
Global investors stepped back amid concern that Trump’s foreign-policy and fiscal agendas lacked definition, reducing confidence, said Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings in New York. A persistent decline in demand would risk hamstringing the plans of the next president. The real estate magnate’s economic proposals include projects that would boost the federal debt by $5.3 trillion, according to estimates from the nonpartisan Committee for a Responsible Federal Budget.
“They’re basically selling Treasuries because they really don’t know what Donald Trump has in store for them,” di Galoma said. “Most of the activity is coming from overseas. They’re not sure what he’s all about.”
Benchmark 10-year note yields rose three basis points, or 0.03 percentage point, to 2.09 percent as of 8:39 a.m. in New York, according to Bloomberg Bond Trader data. The 2 percent security due in November 2026 fell 10/32, or $3.13 per $1,000 face amount, to 99 7/32.
The yield on 30-year bonds increased three basis points to 2.87 percent, after jumping 23 basis points on Wednesday, the most since October 2011.
The bonds due in November 2046 being sold Thursday yielded 2.865 percent in pre-auction trading, compared with 2.47 percent at a previous offering of 30-year debt in October. Investors at last month’s sale submitted bids for 2.44 times the amount of debt available.
“The volatility in itself makes it more difficult generally” to auction debt, said Antoine Bouvet, a London-based rates strategist at Mizuho International Plc. “Particularly given the volatility we had yesterday and the focus on Trump’s policy, there’s been a big steepening of the curve. So the auction will be closely watched.”
Investors from Pacific Investment Management Co. to TIAA Global Asset Management see the surge in long-term yields that came after Trump’s election as a sign inflation will quicken. That means Federal Reserve policy makers may act more swiftly to raise borrowing costs than they have in 2016, when they held off time and time again after increasing their target rate to a range of 0.25 percent to 0.5 percent in December 2015.
To contact the reporters on this story: Eliza Ronalds-Hannon in New York at [email protected] ;Lukanyo Mnyanda in Edinburgh at [email protected] To contact the editors responsible for this story: Boris Korby at [email protected] ;David Goodman at [email protected] Mark Tannenbaum