US bond yields under pressure following strong 30-year auction

  • US bond yields have been coming under pressure and the yield curve has been flattening in recent trade after a strong 30-year auction.
  • If bond yields continue to fall this could hurt USD and help precious metals.

US bond yields have been coming under pressure and the yield curve has been flattening in recent trade after a strong 30-year auction. The US government sold $24B in new 30-year government bonds and the auction stopped through by 1.4bps (i.e. investors were willing to accept the new 30-year bonds at a yield that was 1.4bps lower than the current market rate at the start of the auction).

US 30-year yields are now 6.3bps down on the day (to 1.823%), whilst 10-year bonds have dropped 5.3bps to 1.085%, a near 10bps drop from highs hit midway through Tuesday’s trading session. Real yields are also moving lower; the 10-year TIPS yield are down roughly 3bps.

This comes on the back of a similarly strong auction for 10-year US government bonds conducted on Tuesday that also triggered a drop in US bond yields. Tuesday’s drop in US bond yields resulted in a drop in the US dollar as investors sold the currency in favour of other currencies where yields had been rising.

Potential Market Impact

If US bond yields continue to drop on Wednesday, there is a chance that the US dollar comes under pressure. For now, the Dollar Index is trading around 20 points below highs of the day in the 90.40s and is still higher by just under 20 points or around 0.2%. Meanwhile, falling yields might come to the aid of precious metals markets; spot gold (XAU/USD) currently trades pretty much flat on the day in the $1850s, as does spot silver (XAG/USD) around the $25.50s.

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