U.S. government debt yields slipped Thursday but held near highs after the European Central Bank said it may adjust its guidance to investors given the strength in the European economy.
The ECB is just the latest central bank to signal that it may reconsider its massive bond-buying program, a key stimulus plan enacted to assist markets after the financial crisis. The Bank of Japan made headlines Tuesday after tweaking its own bond purchases, renewing concerns that the globe’s major banks may be curtailing stimulus too quickly.
The Federal Reserve just raised rates in December for the third and final time in 2017. While the U.S. central bank has indicated that it sees three rate hikes this year, markets appear to be expecting fewer hikes given lagging inflation.
The benchmark 2-year U.S. Treasury yield rose to its highest level since 2008 on Wednesday, after Bloomberg News reported that officials in Beijing had recommended that China’s government lower — or even potentially cease — its buying of U.S. sovereign debt. The all-important 10-year yield hit its highest level since March on Tuesday.
The Treasury Department auctioned $12 billion in 30-year bonds at a high yield of 2.867 percent. The bid-to-cover ratio, an indicator of demand, was 2.74. Indirect bidders, which include major central banks, were awarded 71.5 percent. Direct bidders, which includes domestic money managers, bought 7.3 percent.
The 10-year yield has “really already broken out. The 2.42 [percent] level was important to me and we’ve already seen a decisive move above that,” said Katie Stockton, chief technical strategist at BTIG. “Now we contend with the highs around 2.64 [percent] and above that you’re talking about this multi-decade downtrend channel being challenge. That would be a major move.”
Yields have been steadily rising since Republican lawmakers proposed tax cut legislation last fall, a plan many economists think will balloon debt further. China may be concerned about the effect the GOP plan will have on the national debt, with the Tax Cuts and Jobs Act expected to add more than $100 billion per year to the deficit according to the Congressional Budget Office.