Jittery US bond market braces for supply wave

NEW YORK: Bond investors, who have been on edge over signs of growing inflation and a possibly more aggressive Federal Reserve, will have their work cut out for them as the US government seeks to sell US$258 billion worth of debt this coming week.

The Treasury Department began ramping up its debt issuance earlier this month to fund the expected growth in borrowing tied to the biggest tax overhaul in 30 years and a two-year federal spending package.

Last year’s tax reform is expected to add as much as US$1.5 trillion to the federal debt load, while the budget agreement would increase government spending by almost US$300 billion over the next two years.

Analysts worry the combination of a rising budget deficit, faster inflation and more Fed rate increases have ratcheted up the risk of owning Treasuries.

Those concerns pushed benchmark 10-year Treasury yields US10YT=RR up to 2.944 percent, a four-year peak last week, Reuters data showed.

Treasury bill and two-year yields US2Y=RR have reached their highest level in more than nine years.

The five-year Treasury yield US5YT=RR is hovering at its highest levels in nearly eight years, while seven-year yield US7YT=RR climbed to levels not seen since April 2011.

The increase in US yields may entice investors seeking steady income in the wake of the rollercoaster sessions on Wall Street and other stock markets this month, analysts said.