Treasury Auction Could Signal Direction of Rates

The auction of $13 billion in 30-year bonds today could be very telling about the direction of rates in the near term.

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The auction, at 1 p.m. ET, comes as the yield curve steepens to its widest gap between 2-year and 30-year yields since October. The 30-year yield was at 3.366 percent at midday.

Nomura Americas Treasury strategist George Goncalves said if the trade goes against recent trends, that would suggest the current bond market selling spree will continue for the time being.

“To me the deciding factor is how the 30-year bond behaves. The auction is critical. The long stand trade in the bond market has been to buy from the Treasury and sell to the Fed. Those trades have worked wonderfully because we were stuck in a range,” he said. The Fed is scheduled to buy long duration bonds, as part of ‘operation twist’ next week.

But if traders don’t buy into the auction today, it may signal the selloff will continue, he said.

“If we have a short term pause because of the might hold us back from (rates) going higher in the next couple of days,” he said.

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