Treasuries climb as traders back Congress to pass debt deal

(Bloomberg) – Soon-to-maturity Treasuries rallied as trading picked up after the Memorial Day holiday, following an interim debt ceiling agreement that eased default fears payment from the United States.

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So-called ask yields on securities maturing on June 6, the day after the United States could run out of cash, were indicated down 13 basis points to around 5.16% in Asia on Tuesday, according to the data compiled by Bloomberg. Equivalent yields on debt maturing June 15 were listed down 27 basis points. Bills traditionally trade in light volumes during the Asia session.

President Joe Biden and House Speaker Kevin McCarthy expressed confidence on Monday that an agreement to suspend the debt ceiling while capping discretionary spending will pass Congress in the coming days. And the endorsement quickly garnered support from prominent members of the moderate and pragmatic wings of each party.

Yields on some bonds topped 7% last week as investors shunned risky stocks after Treasury Secretary Janet Yellen warned the government would run out of borrowing capacity by June 5.

“Voting on the US debt ceiling is set to start from Wednesday and there appears to be sufficient support to allow passage,” said Tapas Strickland, head of market economics at National Australia Bank Ltd. General Treasury account via a deluge of bond issues.

Analysts expect the Treasury to rebuild its cash balance soon and could sell more than $1 trillion in bonds through the end of the third quarter, according to some estimates. The stock of US cash is currently around $39 billion, a six-year low.

This could limit declines in short-term yields as investors try to gauge what’s next.

Read: A deluge of $1 trillion Treasuries is a painful risk of a debt limitation agreement

Elsewhere, yields on longer-dated Treasuries also fell. The benchmark 10-year yield fell four basis points to 3.76%, while its 30-year equivalent fell five basis points to 3.91%.

It’s “probably kind of a relief rally,” says Hidehiro Joke, senior bond strategist at Mizuho Securities Co. in Tokyo. “It appears that a number of market participants have taken a wait-and-see approach as debt ceiling negotiations did not progress well last week and this caused upward pressure on Treasury rates. last week.”

Along with passing the debt deal, bond traders are also mulling expectations for the Federal Reserve’s interest rate policy in June and July, with another price hike expected. Friday’s US jobs report will be watched closely to see if the labor market continues. show signs of cooling.

This week also brings a month-end rebalancing of the US Treasuries index to incorporate large quarterly new issues of 10- and 30-year debt securities, which could boost demand for these sectors of the market.

“The PCE data released on Friday shows the Fed is not completely out of the woods and may need to continue climbing,” said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities in Singapore. , referring to a measure of inflation favored by the Central Bank. “This should weigh more on the initial maturities than on the later maturities.”

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