Key Takeaways

  • Significant Yield Surge: Long-duration Treasury yields, especially the 30-year and 10-year, are rising sharply in response to expectations of inflationary policies under Trump, such as tax cuts and increased spending. This has created a pronounced steepening in the yield curve.
  • Technical Resistance and Market Implications: The 10-year yield is approaching key resistance at 4.47%. A break above this level could lead to further selling in Treasuries and continued upward pressure on yields.
  • Supply Pressure from Auctions: A supply-heavy auction schedule, including $25 billion in 30-year bonds, is adding pressure. Typically, rising yields attract investors, but election-related uncertainty may limit demand, potentially worsening the sell-off.
  • Fed’s Influence and Bear Steepening Risk: Ahead of the FOMC meeting, traders are cautious about the Fed’s response to rising yields. If the Fed cuts rates without addressing long-term yield rises, a “bear steepening” effect could emerge, with long-term yields climbing despite short-term rate cuts.

Continue reading if you want to learn more..

The U.S. Treasury market is witnessing a pronounced "Trump steepening trade," with a notable sell-off in long-duration bonds. This trend reflects investor expectations that Trump’s return to the White House could lead to policies aimed at stimulating growth and inflation, such as tax cuts and increased spending. As a result, Treasury yields, especially at the long end of the curve, are spiking.

Highlights from the Current Treasury Market Movements

30-Year Yields Surge:

The yield on the 30-year bond has risen by 24 basis points, reaching 4.674%, marking the largest daily increase since 2020. This rise in long-term yields underscores the steepening of the yield curve, as investors anticipate inflationary fiscal policies under Trump’s administration.

Source: Bloomberg and Saxo.

10-Year Yield Near Key Resistance Levels:

The 10-year yield has risen as much as 20 basis points, reaching 4.473% and approaching a critical technical resistance level. A close above this level could signal further upside, potentially targeting the May high at 4.63%. Breaking this resistance could solidify the steepening trend, creating more selling pressure in the long end.

Source: Bloomberg and Saxo.

Supply Pressure on Treasuries

Today's long-end Treasury auction schedule is adding supply-side pressure, contributing to the bearish sentiment. The U.S. Treasury is set to issue $25 billion in 30-year bonds at 19:00 CET.

Rising yields, may further test demand for Treasuries, especially as the market anticipates potential shifts in fiscal policy under Trump. Typically, a substantial rise in U.S. Treasury yields ahead of an auction would attract more investors, but with the uncertainty surrounding the U.S. election, this may not be the case. Bondholders are carefully assessing whether potential growth and inflation-driven policies could erode the real value of their positions, which could further fuel the ongoing selloff.

Implications for Treasury Traders

  • Steepening Bias: Traders should continue to monitor the steepening bias in the Treasury market. With the long end rising faster than the front end, this could indicate that market participants are pricing in future inflationary pressures. In this environment, positioning along the curve is crucial, with potential opportunities in spread trades that capitalize on the steepening yield curve.
  • Key Resistance Levels: Technical traders should watch the 10-year yield resistance around 4.47%. A sustained break above this level could indicate further upward momentum in yields.
  • Auction Dynamics: Given the supply-heavy auction schedule, today’s bond and bill issuance will test investor demand at elevated yield levels. Weak demand could exacerbate selling in long-duration Treasuries, driving yields even higher. Traders should closely observe the bid-to-cover ratios and indirect bidding levels for insights into both domestic and foreign demand.
  • Fed’s Role Amid Higher Yields: With the FOMC meeting tomorrow (preview here), traders are watching for any Fed commentary on financial conditions. If the Fed cuts rates but does not address the rise in long-term yields, there’s a risk of a “bear steepening” effect, where long-term yields continue to rise despite short-term rate cuts. This scenario would reflect concerns over the Fed’s ability to control inflation expectations in the face of fiscal expansion.

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