Rates Spark: U.S. Yields Not For Turning, So Spreads Widen

2025-04-11 04:30:00 ET

Summary

• The US 30yr auction was strong. It's likely that a perception of value helped, as the 30yr yield rose in the hours into the auction.
• Our impression from here is the 10yr Treasury yield will have a tendency to head for the 4.5% area, potentially with a view to thinking about 4.75%.
• We're inclined to view higher yields as an ongoing risk ahead. We've had too much risk-off in recent days that has not correlated with lower yields.
• ECB pricing is now somewhat less extreme - in that there is no longer a probability discounted in forwards of a 50bp April cut - but overall, the market is still firmly looking for three cuts from the ECB this year.

By Padhraic Garvey, CFA , Benjamin Schroeder , Michiel Tukker

US Treasury yields in a mood to re-test higher in the period ahead

The US 30yr auction was strong. It came some 2.5bp through (effectively rich to secondary). The indirect bid was strong (mostly foreign). The direct bid (more domestic) too. Dealer need to support the issue in consequence was low, so all good on the auction metrics, and this is a vote of positivity on Treasuries. It's likely that a perception of value helped, as the 30yr yield rose in the hours into the auction. Still, a strong 30yr auction following a strong 10yr auction is quite a good look, especially in the wake of a really poor 3yr auction where central banks were expected to show up and lap up paper....

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