US set to sell 10-year notes at auction at highest yield in over a decade

Today will be a big test of real-money demand for 10-year US notes. The Treasury will sell $39 billion in a new issuance at 1 pm ET with the results minutes later.

Yields are higher by 8.1 bps today to 4.69%, which is the highest since April. A weak result would put the April high of 4.74% under pressure while anything over 4.61% would he the highest in more than a decade. Yesterday, a three-year note sale tailed by 1.2 basis points and that led to broadly higher yields.

The bigger driver today has been a pair of strong US reports on job openings and ISM services, which also including a jump in the ‘prices paid’ component. The market is pricing in just 35 bps in US easing this year with no cuts fully priced in until July.

Another big question is what happens on the fiscal side in the US. Trump appears to be pressuring Congress to raise the debt limit and run large deficits to pay for an extension (and expansion) of his 2017 tax cut. The President-elect will be speaking at Mar-a-Lago imminently.

Here is what BMO says ahead of the sale:

“Headline risk
related to Trump’s initial actions in the White House is fostering a meaningful
degree of inflationary angst at the moment. This is to say nothing of the
bearish underpinnings of growing deficit concerns, a resilient aggregate demand
profile, sticky inflation, and the fact that New Year’s optimism is currently
defining the agenda. All things considered, we’re biased for a tail at 1pm EST.”

This article was written by Adam Button at www.forexlive.com.