(Bloomberg) — Long-term government bonds underperformed Wednesday as mixed economic data muddled the path for the Federal Reserve while the Treasury Department’s unchanged guidance on debt issuance disappointed some investors who had expected more support for longer-maturity bonds.
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Yields on 30-year bonds rose 3 basis points to 4.68%, while those on two-year rates declined 2 basis points to 3.62%, following weaker-than-expected GDP data, stronger-than-forecast consumption and higher-than-estimated prices. The Treasury maintained its guidance on keeping the issuance of longer-dated securities unchanged for at least “several quarters” while flagging it could potentially enhance its buyback program.
“The overall takeaway to me is stagflation concerns are validated even before many tariffs come into effect,” Zachary Griffiths, head of US investment grade and macro strategy at CreditSights. “I think you’re seeing that in the market reaction with the curve bear steepening now.”
The 10-year yield jumped as much as five basis points to 4.23% after the data and Treasury’s quarterly refunding announcement, then pared the move.
The Treasury in a statement said it plans to sell $125 billion of securities at next week’s so-called quarterly refunding auctions, which span 3-, 10- and 30-year maturities. It also reiterated guidance that’s been in place since January 2024, according to which it expects to keep auction sizes steady for the next several quarters.
While the guidance was in line with most investors’ expectations, some market watchers had anticipated that Treasury officials could take a more aggressive stance to soothe the markets’ supply concerns. Citigroup’s strategists, for example, last week said that the curve may steepen if buybacks are not increased.
“Although guidance was unchanged, the long-end reaction suggests more was expected from Treasury,” Wells Fargo’s strategists Angelo Manolatos and William Gibbons wrote in a note. “Some market participants likely expected increased liquidity support buybacks and/or a discussion about a shorter weighted average maturity.”
The underperformance of long bonds widened the yield gap between five- and 30-year yields 4 basis points to 92 basis points. The curve has steepened about 30 basis points in April. The so-called curve steepening has been a popular theme in the bond market as traders expect that the slowing economy would eventually lead the Fed to cut borrowing costs, while inflation and bond supply would keep long-end yields elevated.