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BOND REPORT : 10-year, 30-year Treasury Yield Hits One-month High

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09/10/2019 | 03:29pm EDT

By Sunny Oh

The Treasury Department's sale for 3-year notes "tailed" on Tuesday

U.S. Treasury yields rose Tuesday, lifting from multiyear lows, as investors showed trepidation over a coming European Central Bank meeting amid fears that policy makers would announce less stimulus than expected earlier.

What are Treasurys doing?

The 10-year Treasury note yield rose 7.4 basis points to 1.706%, its highest since August 9. The last two sessions has seen the benchmark maturity move up more than 15 basis points, marking its biggest two-day rise since November 2016.

The 2-year note rate surged 8.7 basis points to 1.672%, its highest since August 2. The 30-year bond yield climbed 7.6 basis points to 2.184%, its highest since August 9. Bond prices move in the opposite direction of yields.

What's driving Treasurys?

The U.S. Treasury Department's sale for $38 billion of 3-year notes "tailed" by 0.3 basis points, an indication that the bond sale struggled to draw in sufficient demand. The tail is the amount by which the highest yield the Treasury sold in the auction exceeds the highest yield expected when the auction began -- the "when issued" level.

Investors are also looking ahead to the European Central bank rate decision on Thursday, where it is expected to announce stimulus measures. Push back by some ECB policy makers on the case for further easing, however, has dampened hopes that the central bank will an ambitious stimulus package.

ECB President Mario Draghi has insisted it still has policy tools available amid questions that the central bank has run out of ammunition, but analysts say it's not clear if monetary policy can boost economic growth in a world where debt yields are already negative.

In economic data, the U.S. NFIB small business sentiment index fell 1.6 points to 103.1 in August, its lowest level in five months. NFIB cited weakening business prospects for the drop in the confidence indicator.

What did market participants' say?

"The market is on edge regarding the ECB meeting on Thursday morning, with rumors circulating that the monetary policy accommodation announced at the meeting is going to be underwhelming. Bonds have cheapened quite a bit since the lows in yield were seen two weeks ago, but there is still a lot of risk with the market so long and the potential for disappointment so high," wrote Thomas Simons, senior money market economist at Jefferies.

What else is on investors' radar?

Signs that fiscally conservative Germany may be willing to issue debt to finance increased spending came on Monday after reports said Berlin was looking at ways to take advantage of historically low borrowing costs without triggering its constitutional national debt brake. Germany is limited to running a budget deficit no more than 0.35% of its annual economic output.

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