The bond market is preparing for a pivotal week ahead. Inflation readings and upcoming Treasury auctions will soon reveal just how positive or negative investors are towards U.S. government debt. Richard de Chazal, a macro analyst at William Blair, noted the importance of the auctions at stake. He thinks they could be a powerful tool as a “referendum on government debt policies.” In inflation and growth jitters, market indicators have exploded, pushing yields to recent highs. Consequently, investors are asking for more return to hold what was once considered risk-free U.S. government debt.
Don’t forget the Treasury auctions, which will be coming out with results at 1 p.m. ET. This is the moment of truth for our financial markets. Investors continue to keep a close eye on the economic landscape. For CPI, economists expect a 0.2% advance and a 2.4% year-over-year gain. Core CPI is expected to increase 0.3%, with a year-over-year increase of 2.9%. How policymakers portray these figures has the potential to shape both market reactions to the government’s fiscal stance and the long-run economic forecast.
Despite the Feds cutting interest rates in September, leads on 10 year and 30 year debt have jumped. This jump comes on the heels of surging worries over inflation and the federal government’s deficit. His successor, former President Donald Trump announced new, similar tariffs on April 2. This action has further sparked concerns that the tariffs are going to threaten the booming job market and undermine broad-based economic prosperity.
Komal Sri-Kumar, president of Sri-Kumar Global Strategies, noted the importance of the current deficit level, stating, “At the risk of being trite, this time it’s different. A big reason is because the deficit level is much higher.” This increased deficit has become the single most important variable driving the bond market these days.
The stage of soaring debt and deficits has put investors on edge. Sri-Kumar elaborated, “The reason why it’s different is sometimes things crack, suddenly. It is very difficult to predict when exactly the crack is going to come.” This uncertainty has led many to reconsider their investment priorities when it comes to government obligations.
Still, for all these headwinds, a handful of analysts are bullish on Treasury auctions demand. Chip Hughey, head of fixed income at Truist Advisory Services, stated, “I would expect there to be pretty sturdy demand as well, especially the 10-year auction.” Even amidst myriad risks in the current economic environment, many investors believe there is a core of stability. This sentiment is a measure of their confidence in finding the right investment opportunities.
The market continues to prepare for potentially consequential releases. Evan Brown at UBS foresees inflation prints really picking up speed after this month. This recent inflation spike might make it more difficult to understand how risk perceptions around the government’s debt are changing.