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Five Years Good, Seven Years Bad

  • U.S. 7-year Treasury note auction was lackluster, putting upward pressure on yields
  • Selloff in equities was reversed towards the end of the trading session, Friday’s U.S. markets will be true test if investors have shrugged off yield concerns

They say that when you break a mirror, you can expect seven years of bad luck and it appears that “7” isn’t a lucky number for the U.S. Treasury Department.

U.S. equities were cautiously optimistic when the 5-year U.S. Treasury note auction saw decent take up, with yields only slightly higher at 0.85% compared to the target set before the auction at 0.847% – yields rise when the demand and therefore prices of Treasuries falls.

All eyes were on the crucial 7-year U.S. note auction on Thursday, a good indicator as to how longer-term U.S. government borrowing will cost, but markets were miffed when the “weak” auction saw a renewed sell-off in longer-dated Treasuries.

U.S. equities managed to eke out a small gain despite the tepid auction, reversing earlier declines, but the benchmark 10-year U.S. Treasury note continued to come under pressure, after Washington struggled to find buyers for the 7-year note.

The 7-year Treasury has yet to shake off its bout of bad luck, after lackluster demand at the auction in February set off a bout of chaotic trading, and investors are becoming increasingly concerned about the market’s ability to absorb enormous amounts of new debt at a time when sentiment has already soured on Treasuries.

It doesn’t help either that the Fed is standing back and standing by as it articulates that markets will find their own equilibrium when it comes to Treasuries.

Yields on all U.S. government debt continue to trend higher as the backdrop of a brighter economic outlook and higher inflation weigh on investors.

Confirming that view, U.S. jobless claims had fallen to their lowest levels since the pandemic began and tech stocks continue to come under downward pressure.

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