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U.S. Government Bonds Fall Amid Upcoming Supply, European Declines

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01/02/2018 | 10:25pm CET
By Daniel Kruger 

U.S. government bonds weakened Tuesday as a wave of short-term Treasury bill supply met with declines in prices for bonds in Germany and the U.K.

The yield on the benchmark 10-year U.S. Treasury note yield posted its biggest one-day jump since Dec. 19, rising to 2.465% from 2.409% Friday. Bond yields rise as prices fall.

Yields rose in Europe amid concerns that the strong euro may slow the European Central Bank from winding down easy money policies, which could lead to a pickup in consumer prices. Inflation is a threat to the value of long-term bonds, as it erodes the purchasing power of their fixed interest payments.

Investors also sold bonds to make room in anticipation of bond sales from companies including Berkshire Hathaway and GM Financial, and sovereign issuers such as Ireland and Belgium, some analysts said.

"There's a lot of anticipation that corporate supply will build pretty heavily in January," while an increase in European government-debt offerings is putting "a great deal of selling pressure" on Treasurys as they often trade in the same direction, said Thomas di Galoma, head of trading at Seaport Global Holdings. "There's some real nervousness as we start the new year that yields might slide," said Mr. di Galoma, adding that the 10-year yield could reach as high as 2.75%.

The yield on the two-year Treasury note posted its biggest one-day gain since Oct. 16, as the Treasury sold $160 billion of short-term bills with maturities ranging between one month and one year. The two-year Treasury closed at 1.923%, the highest since September 2008.

The Treasury Department said in November that it intends to increase borrowing in short-term securities as the budget deficit begins to rise. The deficit in 2017 was $666 billion, and will it face upward pressure from the tax overhaul bill signed by President Donald Trump in December, which is expected to add more than $100 billion annually over the next 10 years.

Write to Daniel Kruger at [email protected]

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