The yield on the 30-year Treasury bond was on track to finish at November highs on Wednesday, as traders assessed a downgrade to the U.S. government’s credit rating by rating agency Fitch and a better-than-expected private-sector employment report.
What’s happening
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The yield on the 2-year Treasury
BX:TMUBMUSD02Y
slipped by 1.2 basis points to 4.9% from 4.912% on Tuesday. -
The yield on the 10-year Treasury
BX:TMUBMUSD10Y
advanced 2.9 basis points to 4.077% from 4.048% Tuesday afternoon. -
The yield on the 30-year Treasury
BX:TMUBMUSD30Y
rose 6.6 basis points to 4.17% from 4.104% late Tuesday. Tuesday’s level was the highest since Nov. 9, based on 3 p.m. Eastern time figures from Dow Jones Market Data.
What’s driving markets
Data released on Wednesday showed that the U.S. added 324,000 private-sector jobs in July, according to payroll processor ADP — signaling the labor market remains healthy as businesses hired more workers to keep up with demand.
The ADP data plus Friday’s nonfarm payrolls report will feed into the Federal Reserve’s calculations on whether to continue tightening monetary policy, though the ADP report is seen as having a poor track record of foreshadowing the government’s official employment report.
Meanwhile, equities showed signs of stress after Fitch downgraded the U.S. government’s credit rating on Tuesday. Investors, analysts and officials were assessing the most likely impact of Fitch’s move on Treasury’s $1 trillion third-quarter borrowing needs.
On Wednesday, the U.S. Treasury published its August refunding statement. It plans to offer $103 billion of Treasury securities next week, broken down as follows:
- A 3-year note in the amount of $42 billion, maturing Aug. 15, 2026, to be auctioned at 1 p.m. Eastern time next Tuesday.
- A 10-year note in the amount of $38 billion, maturing Aug. 15, 2033, to be auctioned at the same time next Wednesday.
- A 30-year bond in the amount of $23 billion, maturing Aug. 15, 2053, to be auctioned at 1 p.m. ET on Aug. 10.
The balance of Treasury financing requirements over the quarter will be met with regular weekly bill sales, cash management bills, and monthly note, bond, Treasury Inflation-Protected Securities, and 2-year Floating Rate Note auctions.
What analysts are saying
“The U.S. credit rating downgrade should not have been a surprise for investors that have been following Fitch’s comments, but the timing surely caught everyone off guard,” said Edward Moya, senior market analyst for the Americas at OANDA Corp.
“Wall Street can’t ignore what is happening with fixed income as Treasury yields surge,” Moya wrote in a note.
