Yield on 10-Year Treasury Note Rises Amid Lackluster Auction Demand

US Treasury Market Extends Losses Amid Investor Fatigue

The $31 trillion US Treasury market continued its downward trend after a series of auctions drew relatively poor demand. The market volatility, stemming from repeated diplomatic failures to end the US military operation in Iran, has led to investor fatigue.

Key Statistics:

• The US government sold $183 billion of fixed-rate debt this week.
• The seven-year notes were sold at a yield of 4.255%, compared to the yield of 4.247% seen on similar debt at the auction deadline.
• Two- and five-year sales earlier this week drew even worse demand.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Market Impact:

The lackluster appetite for Treasury auctions comes at a time when uncertainty about the length and economic impact of war in the Middle East drives energy prices higher. The prospect of higher inflation has led traders to abandon wagers on Fed reductions this year and begin to price in a rate increase, an additional headwind for bonds.

Correlation with Oil Prices:

Treasury yields have largely tracked oil prices since the US military action began on February 28. The US benchmark crude oil contract, which closed at levels near $100 a barrel last week, climbed as much as 5.5% Thursday to about $95 after the US President threatened to intensify attacks.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Market Volatility:

The market's volatility has also increased transaction costs, particularly for short-maturity tenors, interest-rate strategists at Morgan Stanley said. This could account for some of the weakness seen at this week's auctions.