June 18, 2024

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One Last Make-or-Break Week of 2023 Has Treasury Traders on Edge

2 min read

(Bloomberg) — It’s been a tempestuous year for US Treasuries. The coming week will set the stage for how it ends.

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In the span of just a few days, investors will get updates on the major forces responsible for the unusually high volatility in the US bond market as it heads toward an unprecedented three-year loss. Saturday’s escalation of the Israel-Hamas conflict will also draw the attention of investors, though in recent weeks haven flows into Treasuries have been largely outweighed by concerns over the direction of monetary and fiscal policies.

The federal government will spell out how many new bonds it will sell to plug the budget deficit, which is testing the market’s capacity to absorb a seemingly endless supply of Treasuries. The Federal Reserve and the Bank of Japan will telegraph where monetary policy is heading, which may help shape demand from buyers overseas. And on Friday, the Labor Department will release its monthly employment report, a closely watched indicator of whether tighter monetary policy is cooling the economy as much as policymakers want.

It’s a crucial juncture for the bond market, where 10-year Treasury yields during the past week briefly surged above 5% for the first time since 2007 before pulling back down. Such moves have whipsawed investors, who are divided over whether yields will climb back up as the economy keeps going strong — or start sliding as high rates slow the economy.

“We’re going through a period of volatility,” said Amar Reganti, fixed-income strategist at Hartford Funds, who previously served as deputy director of the US Treasury’s debt-management department. “The data is uncertain, there’s uncertainty about the composition of Treasury supply, and then there’s a shift among the buyer base.”

Below are some of the highlights of the next week’s events:

Bank of Japan

The BOJ’s surprise decision in late July to relax its grip on long-term yields, allowing them to…

2023-10-28 16:00:00

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