Growing Supply of Government Debt Helping to Boost U.S. Yields

Rising U.S. Treasury yields pushed the dollar higher against a basket of major currencies on Wednesday. The dollar index hit a four-month high while the benchmark U.S. 10-year Treasury yield rose to its highest in more than four years.

June U.S. Dollar Index futures settled at 90.953, up 0.416 or +0.46%.

The catalysts driving yields higher are worries about the growing supply of government debt and inflationary pressures from rising oil prices.

The rise in U.S. interest rates has also caused U.S.-Japan and U.S.-German yield differentials to widen further, making the U.S. Dollar a more attractive investment.

U.S. Treasury Markets

U.S. government debt yields continued to rise Wednesday, with the rate on the benchmark 10-year Treasury note inching above the psychological 3 percent level it hit Tuesday for the first time since 2014. Late Wednesday, the yield was hovering around 3.028 percent, down from 3.033 percent hit earlier in the session, its highest level since January 2, 2014. Traders and speculators may be targeting 3.05 percent, the T-note’s highest level since 2011.

The yield on the two-year Treasury note also extended its gains, up to over 2.5 percent and its highest level since September 2008. The yield on the 30-year Treasury bond was higher at 3.214 percent.

U.S. Economic Data

It was a light day on Wednesday ahead of Thursday’s U.S. Durable Goods and Friday’s U.S. GDP reports. In economic data, total mortgage application volume fell 0.2 percent for the week and was 0.8 percent lower than a year ago, according to the Mortgage Bankers Association’s seasonally adjusted survey.

Additionally, the Treasury Department auctioned $35 billion in five-year notes at a high yield of 2.837 percent on Wednesday. The bid-to-cover ratio was 2.49.

Gold

Gold prices collapsed on Wednesday, pressured by the strong U.S. Dollar and the jump in U.S. Treasury yields. Gold traders also continued to react to solid economic data from earlier this week that indicates the economy is growing at a robust pace. Traders are also selling in reaction to the easing of tensions between the United States and China over trade.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil posted a dramatic reversal to the upside late Wednesday to finish higher for the session. Early in the trading day, prices were driven lower by a U.S. government report that showed an unexpected increase in U.S. crude oil and gasoline inventories.