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Introduction: US sells 30-year bonds at highest borrowing costs since 2001
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The fiscal pressures on the US government have risen after it paid the highest borrowing costs to sell long-term bonds in a quarter of a century.
An auction of 30-year US Treasury bonds last night showed that investors are demanding a heavy premium to take on long-duration US debt, amid concerns over the risk from inflation and the country’s rising national debt.
The sale of $25bn of 30-year bonds on Thursday incurred a yield, or interest rate, of 5.216%, the most since 2001.
Bond yields rise when prices fall, so last night’s auction suggests investors are worried that inflation will remain high for some time, prompting policymakers to keep interest rates high for some time.
That will concern the Treasury Department, as they need to fund a growing deficit due to Donald Trump’s spending plans and tax cuts (plus the refunds on the president’s tariffs).
Michal Stanczyk, portfolio manager for the global fixed income team at Allspring Global Investments, says (via Bloomberg):
“Investors are being asked to absorb a growing supply of government debt globally at a time when deficits remain large, inflation uncertainty persists.”
“If investors continue demanding greater compensation for inflation and fiscal risks, long-term yields could move higher and away from 5% even if Treasury auctions remain well covered.”
The agenda
-
10am BST: Eurozone flash GDP report for Q2
-
1.30pm BST: US retail sales for July
-
3pm BST: University of Michigan’s US consumer confidence index
Key events
The oil price is moving higher this morning, which will add to those inflation fears.
Brent crude has risen by almost 1% to $87.88 a barrel, having fallen yesterday for the first time in over a week.
Crude prices are rising after the Abu Dhabi National Oil Company reported that two of its vessels were attacked while transiting the Strait of Hormuz last night, and as the US threatened an indefinite naval blockade of Iran.
Reuters: BOJ eyeing September rate hike
Concern abour rising US borrowing costs was one reason Washington worked with Tokyo to prop up the Japanese yen earlier this month.
The US was concerned that Japan’s government might sell some of its holding of Treasury bonds in an attempt to stabilize its currency, so took part in a joint intervention to strenthen the yen instead.
That operation only had a temporary success (the yen recovered, but then began to weaken).
And now, The Bank of Japan is reportedly set to raise interest rates next month and could hike rates more aggressively afterwards, to provide support for the yen.
According to Reuters, three sources have said the BoJ is set to raise rates as soon as September, due to inflation worries and the weak yen.
Gennadiy Goldberg, head of US rates strategy at TD Securities, agrees that the rise in US borrowing costs is “problematic” for the Trump Treasury, adding (via the FT):
“They have to fund the government at more expensive levels.”
Introduction: US sells 30-year bonds at highest borrowing costs since 2001
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The fiscal pressures on the US government have risen after it paid the highest borrowing costs to sell long-term bonds in a quarter of a century.
An auction of 30-year US Treasury bonds last night showed that investors are demanding a heavy premium to take on long-duration US debt, amid concerns over the risk from inflation and the country’s rising national debt.
The sale of $25bn of 30-year bonds on Thursday incurred a yield, or interest rate, of 5.216%, the most since 2001.
Bond yields rise when prices fall, so last night’s auction suggests investors are worried that inflation will remain high for some time, prompting policymakers to keep interest rates high for some time.
That will concern the Treasury Department, as they need to fund a growing deficit due to Donald Trump’s spending plans and tax cuts (plus the refunds on the president’s tariffs).
Michal Stanczyk, portfolio manager for the global fixed income team at Allspring Global Investments, says (via Bloomberg):
“Investors are being asked to absorb a growing supply of government debt globally at a time when deficits remain large, inflation uncertainty persists.”
“If investors continue demanding greater compensation for inflation and fiscal risks, long-term yields could move higher and away from 5% even if Treasury auctions remain well covered.”
The agenda
-
10am BST: Eurozone flash GDP report for Q2
-
1.30pm BST: US retail sales for July
-
3pm BST: University of Michigan’s US consumer confidence index
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