Market bets on higher US Treasury bond rates

(Bloomberg) – There are more indications that yields on US Treasuries will continue to rise, even if US central bank president Jerome Powell sounds a more balanced tone at this week’s important Jackson Hole meeting.

The yield on five-year government bonds – a term that simultaneously captures expectations of changes in short-term interest rates and the pace of purchase of longer-term bonds by central banks – rose by almost 0.20 percentage points since the minimum reached. this month, extending its underperformance against the rest of the yield curve since February.

The yield advance comes at a time when the market appears to have disregarded the prospect that Powell will take a more aggressive stance.

It is expected to signal an eventual reduction in monetary stimulus during the institution’s annual symposium in Jackson Hole, in the mountains of Wyoming state.

For ING strategists led by Padhraic Garvey, the relative low cost of five-year bonds compared to two- and 10-year bonds suggests there is “residual” drive to higher yields.

A more balanced positioning could lead market rates to test higher levels, said Garvey of ING. “It may be temporary, but it seems to be the path of least resistance.”

The size of investor appetite for US government debt will become clearer today, when the Treasury auctions off $61 billion in five-year notes.

Algorithmic models that contemplate momentum, volatility and bond loading conditions have driven the dismantling of long treasury positions, said Mohit Kumar, strategist at Jefferies International.

That means the flows may be enough to maintain the Treasury’s downside, even if Powell refuses to clearly signal when he will start withdrawing support from the debt market.

“The last two months have been positive in terms of duration, with favorable seasonality for loading and low volatility”, evaluated Kumar, who is sold in Treasury bonds maturing in five years.

“We expected some dismantling of long positions with the approach of the Jackson Hole volatility event and the decrease in the seasonality for paper loading.”