Treasuries fell as investor appetite for riskier assets, including stocks and corporate bonds, recovered, damping the appeal of US government bonds as a hedge.
The declines lifted yields across maturities by as much as four to five basis points, led by short-term tenors. The two-year note rose as much as five basis points to 4.57%, reversing about half of its 12-basis-point drop on November 5, when the Nasdaq 100 index suffered its biggest drop since March 2020.
US stocks extended their recovery from the rout Monday, and a heavy slate of new corporate bonds also highlighted investor willingness to continue to underwrite US economic growth via financial conditions.
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Several major US dealers since Friday have said yields last week reached levels that were unlikely to be breached in the absence of new threats. Risk aversion “has taken yields to support, but a sustained break may require clearer evidence of deterioration in the growth outlook,” interest-rate strategists Joseph Abate and Monty Gandhi wrote.
Short-term Treasury yields faced upward pressure from traders rebuilding wagers on Federal Reserve interest-rate hikes over the next year. Also, the first of this week’s three auctions of longer-term Treasury debt — a $58 billion three-year note sale — is ahead at 1 p.m. New York time.
The auction was expected to draw a yield near 4.63%, based on pre-auction trading. While still more than 30 basis points lower than the result of last month’s three-year note auction, the indicated yield has risen more than 10 basis points from Friday’s low.
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Treasury yields climbed even as benchmark oil prices — whose slump following last week’s US elections contributed to the bond rally — declined more than 3%, reaching new two-month lows.