Bond Report: Treasury Yields Tick Higher Ahead Of Corporate Debt Sales In December

U.S. Treasury yields closed mostly higher Friday as corporate underwriters sold Treasurys in anticipation of heavy corporate debt issuance next week.

Due to the Thanksgiving holiday, the Securities Industry and Financial Markets Association recommended that the bond market shutter on Friday at 2 p.m. Eastern.

The 10-year Treasury note yield TMUBMUSD10Y, +0.73%   rose 1.2 basis points to 1.778%, while the 2-year note yield TMUBMUSD02Y, -0.95%  was down 2.2 basis points to 1.602. The 30-year bond yield TMUBMUSD30Y, +0.46%  climbed 1.3 basis points to 2.04%, while notching its largest three-month yield gain since November 2018, according to Dow Jones Market Data.

In Europe, the 10-year German government bond yield TMBMKDE-10Y, +0.50%   ticked up 0.5 basis point to negative 0.359%, while the rate for the equivalent British maturity TMBMKGB-10Y, +3.32%   was up 2.8 basis points to 0.699%.

Market participants said the Treasurys market saw some modest pressure due to “rate-lock” selling. Ahead of a major corporate debt issue, dealers temporarily sell U.S. government paper to lock in the borrowing rate of the bonds they are underwriting. Once the bond is sold, the dealer repurchases the Treasurys again, unwinding the “rate lock.”

“There’s talk of fairly decent corporate supply in the weeks of December. What’s mostly going on is ‘rate locking’ ahead of next week,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.

Di Galoma said underwriters typically entered these hedges on the Friday before the week of busy issuance.

Market participants also were eyeing negative news out of Europe on Friday, as well as international trade developments, after President Donald Trump signed off on the Hong Kong Human Rights and Democracy Act, a bill supporting protesters in the Asian financial center. Many remain worried that tensions over Hong Kong could undermine recent progress in trade negotiations.

John Carey, a portfolio manager at Amundi Pioneer, pointed to mass layoffs announced by German automaker Daimler AG DAI, -1.46%  on Friday as a concerning sign in Europe, but also cautioned that any market moves could be exaggerated in light holiday trade.

“We’ll have to wait until Monday to get a better sense of market tone,” he told MarketWatch.

Meanwhile, a report in the Wall Street Journal suggested Chinese officials were still seeking a trade deal.

RECENT NEWS

Why Low Volatility Is Not The Same As Low Risk

Why Low Volatility is Not The Same As Low Risk Some of the worst-performing portfolios in... Read more

Gyrostat May Market Outlook: When The Cost Of Protection Falls - Signals For Portfolio Positioning

This monthly Gyrostat Risk-Managed Market Outlook does not attempt to forecast market direction. It... Read more

The Risk Most Portfolios Do Not Explicitly Manage

Most portfolios are constructed on a simple and widely accepted assumption: that equity risk will be r... Read more

Gyrostat April Outlook: The Changing Cost Of Protection

Signals For Portfolio Construction This monthly Gyrostat Risk-Managed Market Outlook does not attemp... Read more

What Advisers Misunderstand About Protection

Protection is rarely rejected outright. More often, it is misunderstood. Most advisers recognise th... Read more

Gyrostat Market Outlook: Looking Beyond The 30-day Volatility Headlines

This outlook examines how financial markets are pricing risk rather than attempting to forecast market... Read more