The US is issuing two, five and seven year Treasury bonds this week, the second of which will be issued today. The five-year bond has a record issuance size of US$67 billion.
“All eyes are on it,” Bryn Jones, head of fixed income and fund manager at Rathbones, told The DESK.
“Indirect bids for two-year bonds were high,” Jones observed of the US$66 billion issuance. Investor appetite was high—but “if [the five-year] struggles in any way it will push up term premia for the Treasury curve.”
“This debate rages on and won’t go away until the US feels like it needs to address its level of debt,” he added. “This is a recurring thought for the bond market, tied into discussions about debt ceiling.”
This week’s final issuance from the US, a seven-year bond with a value of US$43 billion, is scheduled for Wednesday.
“There are, as yet, no signs of exhaustion of people taking down US Treasury issuance”, Luke Hickmore, investment director at abrdn, told The DESK. However, he added, “it’s probably a matter of waiting for it to happen, rather than wondering if it will.”
“You’ve got a 6.5% fiscal deficit, you’ve got 100% debt/GDP looming on the horizon, you’ve got continued need for borrowing—and that’s not going to change whoever’s next in the seat in the White House,” he continued. “With the promise of the Fed cutting rates at some point, it would seem to be quite easily taken down.”
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