Treasuries steady ahead of Fed minutes, debt auction

by James Hirai

Treasuries are holding their ground following the longest streak of declines since April as investors look ahead to a US debt auction and the minutes from last month’s Federal Reserve meeting. 

US 10-year yields were broadly steady at 4.40% following a five-day run of losses which lifted them almost 20 basis points above a two-month low. The Treasury will sell $39 billion of 10-year notes later Wednesday followed by $22 billion of 30-year bonds Thursday. An offering of three-year securities on Tuesday was met with soft demand. 

“A poorly-received auction will only serve to re-ignite concerns over the unsustainable path of US borrowing,” said Michael Brown, senior research strategist at Pepperstone Group.

Higher borrowing costs have been a global phenomenon amid heightened sensitivity to fiscal concerns. Japanese bond yields surged this week on fears politicians will promise to loosen the purse strings as they court voters ahead of elections.  

The uncertainty surrounding US trade policy is meanwhile evident in inflation metrics, with President Donald Trump expected to announce more details as he pushes forward with his aggressive tariff plan. US 10-year breakeven rates hover close to a two-month high. 

Ahead of the minutes from June’s FOMC decision, swaps imply the central bank will keep rates in a range of 4.25% to 4.5% at its meeting later this month but deliver two quarter-point reductions by the end of 2025.

Analysis by strategists at Deutsche Bank AG. shows this is the fourth year running where markets have bet on a more dovish path for US interest rates than what transpired. 

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