Concerns over what Trump’s tax bill will do to the federal deficit have rattled the Treasury market.
Nerves were soothed somewhat on Thursday after strong demand at a 30-year auction.
Both near- and long-dated bonds rallied, pushing yields lower.
The bond market just cleared a key hurdle and put investors at ease about the state of government borrowing — at least for now.
The Treasury Department saw solid demand for its anxiously awaited auction of 30-year government bonds on Thursday. It comes a day after a 10-year offering saw similarly strong demand.
The Treasury market has been destabilized in recent weeks by concerns over the impact President Donald Trump’s tax bill will have on an already-swollen federal deficit. It was those same worries that led to tepid demand at a 20-year auction a few weeks ago, and led to the fixation on this week’s offerings.
Recent volatility in the 30-year has led some to speculate that the bond — historically considered to be one of the safest investments in existence — was losing it its luster as a safe haven. Despite continued calls for investors to continuing “selling America,” US government bonds look fine for the time being.
In the end, the government sold $22 billion worth of 30-year bonds on Thursday at a yield of 4.84%. That’s 8 basis points below what the 30-year US Treasury yield traded around at the time the auction closed, implying strong demand.
Demand was also solid at the 10-year US Treasury auction on Tuesday, when the government sold $39 billion worth of 10-year bonds at a 4.42% yield, which was also lower than expected.
Bonds were mired in a sell-off for most of April and May as concerns swirled around mounting debt levels, the impact of tariffs on the US economy, and the GOP tax bill, which is expected to add trillions to the budget deficit over the coming decade.
Treasury bonds are thought of as an ultra-safe corner of US financial market. Soft demand is a sign investors may be too skittish about the US macro picture to pick up government debt — something that would be unusual and reflect extreme fear about the macro outlook.
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