Treasury yields rose on Tuesday for a second day as investors sold Treasurys to accommodate up to $40 billion of new corporate bond supply expected in a week otherwise bereft of market-moving economic data.
“U.S. corporate supply will be the largest factor this week... This should have an adverse effect on the [yield] curve and should allow for the curve to steepen out somewhat,” Tom di Galoma, head of rates and credit trading at ED & F Man Capital Markets, said in a note.
Corporate bonds typically have a higher return than Treasurys, which makes them a more attractive investment.
“Adding to the support of the long-end of the curve is the recent drop in commodity prices,” said Ian Lyngen, senior rates strategist at CRT Capital Group, said in a research note.
Oil prices continued to move lower Tuesday, struggling to hold above the $50 mark, after Nymex-traded crude-oil contracts for August delivery CLQ5, +1.10% settled at their lowest level since early April on Monday. Meanwhile, gold and silver prices continued to trade close to their lowest level in five years, after reaching a five-year low on Monday.
“The drop in energy and commodity prices is reducing liquidity and putting pressure on corporate [bonds],” Jody Lurie, corporate credit analyst at Janney, said in a note.
But it isn’t “particularly troubling for those at the [Federal Reserve] preparing for the liftoff rate hike later this year, as lower fuel prices would prove a simulative offset for modestly tighter monetary policy,” Lyngen added.
The yield on the 10-year Treasury TMUBMUSD02Y, +0.03% inched higher by two basis points to 2.394%, while the yield on the two-year TMUBMUSD02Y, +0.03% gained 0.4 basis point to 0.714%. Meanwhile, the yield on the 30-year bond TMUBMUSD30Y, +0.42% rose 2.6 basis points to 3.132%.
Bond yields rise as prices fall, and vice versa.
Meanwhile in the eurozone bonds were also under selling pressure, as investors continued to digest positive news coming out of the Greek debt saga and a flurry of corporate earnings.
As equities edged lower, government yields rose between 1.7 and 4.1 basis points across the eurozone. The yield on the benchmark German 10-year bund TMBMKDE-10Y, +1.99% gained 2.3 basis points to 0.741%.
The reopening of Greek banks was the main bearish driver, as well as news that on Monday, the Greek government repaid about 6.8 billion euros ($7.38 billion) to its creditors, using an EU bridge loan.
