The US Treasury bond issuance spree starts this week, with the US Treasury selling $103 billion between 3-, 10- and 30-year notes, the largest auction volume for these three maturities since March last year.
The increase in coupon auction size is extraordinary outside of a crisis. Compared to last month, the size of the thirty and ten-year US Treasury bond sales increased by 38% and 19%, respectively, the most significant boost since June 2020, amid the Covid pandemic. However, the macroeconomic backdrop has sensibly changed since then. Inflation has increased to a level we haven’t been accustomed to for decades, and the Federal Reserve has hiked rates aggressively. Despite that, inflation remains elevated, and more tightening might be warranted by year-end, adding to a bearish bond market. In contrast, in 2020, the uncertainty regarding the pandemic increased safe-haven demand markedly.
However, this week, the US Treasury bond issuance might be appealing for real money. If US Treasuries hold current levels, the 10- and 30-year Treasury auctions may price at the highest yield in 14 and 11 years, respectively.
Significant demand may temporarily resolve concerns regarding upcoming larger auction sizes, resulting in a short-lived bond bull market.
Also, Thursday's CPI numbers might contribute to such a rally. The monthly core CPI is expected to come at 0.2% for the second month in a row. That could increase market confidence that inflationary pressures are adjusting lower and that the bond bull market might start.