BOND REPORT: Treasury Yields See Gains As Corporate Supply Weighs On Market
Speculation that Apple will plan a mega debt sale has kept investors on the sidelines
Treasurys mostly sold off, driving yields higher, on Tuesday as incoming corporate supply and rumors that Apple planned to unveil a large debt issue this week curtailed demand for U.S. government paper.
The 10-year benchmark Treasury note's yield rose 2.3 basis points to 2.282%, extending the 1.1-basis-point bump seen in Monday's session. The yield for the two-year Treasury note was steady at 1.355%, while the 30-year Treasury rose 2.9 basis points to 2.867%. Bond prices move inversely to yields.
Longer-dated Treasurys underwent a modest selloff as corporations looked to flog their bonds to money managers. Large U.S. firms unloaded $16.1 billion worth of debt on Monday, according to data compiled by Janney Montgomery Scott. Before new corporate supply hits the market, bond underwriters tend to hedge against large interest-rate moves by selling their holdings of government paper, causing an uptick in yields.
"The market is being overwhelmed by corporate supply," said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.
The rush of new corporate debt also comes amid speculation that Apple Inc.(AAPL) could bring forward a large bond offering after posting better-than-expected earnings in its third quarter (http://blogs.marketwatch.com/thetell/2017/08/01/apple-reports-earnings-ahead-of-expected-iphone-launch-live-blog/). In the past, the company has taken advantage of historically low interest rates to raise money for dividends and stock buybacks.
"There's been some speculation that [Apple] may bring on a very sizable deal," said di Galoma.
The Treasury yield curve steepened slightly after the Job Openings and Labor Turnover Survey showed a record number of openings, surging to 6.16 million in June from 5.66 million in May. A steepening yield curve, which charts maturities against the returns of a bond, suggests investors are betting that the strong labor market could stoke inflation pressures and raise the prospect of monetary tightening. Both outcomes are bearish on government paper with extended maturities.
Elsewhere, the global economy showed signs of weakness. The Japanese trade surplus fell below expectations at Yen518.5 billion ($4.7 billion) for June. More focus was paid to how the German trade surplus missed consensus forecasts after exports fell for the first time this yea (http://www.marketwatch.com/story/german-exports-fall-for-first-time-in-2017-2017-08-08)r, slipping to EUR22.3 billion ($26.3 billion) in June.
If major eurozone exporters like Germany are losing steam it could reverse investor optimism over the region's economic revival. In addition, a further deterioration of data from the export powerhouse could arouse further caution from the European Central Bank as it walks the tightrope of steering away from years of easy-money policies while avoiding a market tantrum.
"When combined with yesterday's disappointing German industrial production figures, which declined for the first time this year, the data brings into question the assumption that core Europe has made it out of the woods of cyclical stagnation," said Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets, in a note to clients.
But the weak export figures did little to prevent the German 10-year government bond's yield from budging up 1 basis point to 0.471%.
Traders also eyed the Treasury Department's auction for $24 billion of three-year notes as it took in enthusiastic demand, a strong showing for the first of three key debt sales this week. Treasury yields can be influenced by auctions, but traders appeared to shrug off its results.
(END) Dow Jones Newswires
August 08, 2017 17:20 ET (21:20 GMT)