Treasury yields end at four-week highs after another poorly received auction

By Vivien Lou Chen

Yields on U.S. government debt finished at their highest levels in about a month on Wednesday after another Treasury auction was met with poor demand and as concerns grow that the Federal Reserve may have to keep interest rates higher for longer.

What happened

The yield on the 2-year Treasury BX:TMUBMUSD02Y rose 3.2 basis points to finish at 4.983% after factoring in new-issue levels. The yield on the 10-year Treasury BX:TMUBMUSD10Y rose 8.1 basis points to 4.623%, from 4.542% on Tuesday.The yield on the 30-year Treasury BX:TMUBMUSD30Y jumped 8.6 basis points to 4.742%, from 4.656% on Tuesday. Wednesday's levels for the 2-, 10- and 30-year rates are the highest since April 30, based on 3 p.m. Eastern time figures from Dow Jones Market Data.

What drove markets

Treasury's $44 billion sale of 7-year notes on Wednesday tailed by 1.3 basis points in a sign of weak demand. Indirect and direct bidders took below-average shares of the sale, which forced primary dealers to step in by more than usual.It was the third auction this week to raise questions about the market's appetite for Treasury supply. Tuesday's sales of 2-year and 5-year notes, which totaled almost $140 billion, were also not very well received, contributing to a selloff on the same day that sent 10- and 30-year yields to their highest closing levels since May 2-3.Separately on Wednesday, the Fed's Beige Book report showed that economic activity continued to expand from early April through mid-May, although conditions varied across industries and districts. Retail spending was flat to up slightly.

On Tuesday, Minneapolis Fed President Neel Kashkari told CNBC that further interest-rate hikes can't be ruled out, and that rate cuts are not likely to come before "many more months" of benign inflation data. His comments came ahead of Friday's release of the April reading of the Fed's preferred inflation measure, the personal-consumption-expenditures, or PCE, index. Kashkari is a nonvoting member of the Federal Open Market Committee this year.

-Vivien Lou Chen

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05-29-24 1541ET

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