US long-term interest rates rose to the highest level of the year on Wednesday, threatening the “green shoots” of recovery, after the latest sale of 10-year government debt met with a tepid response from inflation-wary investors.
Concerns about the growth of government borrowing forced the US Treasury to give investors in an auction of $19bn in 10-year notes a yield of 3.99 per cent – 4 basis points higher than the yield available before the auction. That constituted the biggest yield markup since a 10-year auction in May 2003, said Morgan Stanley. Yields on the 10-year note, the benchmark rate for US mortgages, hit a high of 4 per cent during the day, up from 3.6 per cent a week ago.
“We are seeing traders draw a line in the sand at 4 per cent” on 10-year notes, said Tom di Galoma, head of US rates trading at Guggenheim Capital Markets. In recent months, auctions have often been awarded at higher-than-expected yields, with dealers and investors being asked to buy higher amounts of debt as the US Treasury seeks to fund a growing budget deficit.
The next test of the US Treasury’s issuance program looms on Thursday with the sale of $11bn in 30-year bonds. An auction of 30-year bonds last month went badly as investors signalled their concerns about the budget deficit.
“That did not go well last time, so there is also some additional concern,” said Dominic Konstam, head of interest rate strategy at Credit Suisse.
I thought it would take a lot longer for inflation to start seriously kicking in, but the people who look at the future aren't liking what they see and they know everything is about to get a lot more expensive.
I think we're about to head down the second drop in the double-dip recession.
Oh, and oil is predicted to go as high as $250.00, roughly twice the high it hit last year. How's $8 a gallon gas sound to you?
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