Will long-dated treasuries entice investors?

investmentnews.com:

Bulging sales of US Treasuries are about to deliver a major test of investor demand and determine whether a selloff has room to run as the market braces for the biggest round of refunding auctions since last year.

Yields have surged since late July, and climbed again Monday, amid evidence of a resilient US economy, and after the Treasury shocked traders last week when it signaled greater borrowing needs. A rising US budget deficit and a poor fiscal outlook at a time of near full employment contributed to the move by Fitch Ratings to strip the US of its top rating last week. 

The bond market has to absorb a combined $103 billion of 3-, 10- and 30-year auctions before the week is out — up $7 billion from the May slate — as well as a key inflation reading Thursday. Yields on 10- and 30-year Treasuries are around 20 basis points or more higher than just a couple weeks ago and are within sight of multi-year peaks set in October.

“There are a lot of factors coming together to push long-end rates higher,” Oksana Aronov, head of market strategy at JPMorgan Investment Management, said on Bloomberg TV. The move could have legs, she said, citing the boost to Treasury auctions, a Bank of Japan policy shift and European Central Bank tightening.

The key question is whether long-dated yields above 4% will prove attractive for buyers and also arrest the recent trend toward a sharply steeper yield curve, which has hurt widely-held wagers on a flatter one. The week’s auctions sales start with $42 billion of three-year notes on Tuesday, followed by $38 billion of 10-year notes Wednesday. A $23 billion sale of 30-year bonds on Thursday comes a few hours after the release of the July consumer price index report. 

The three-year yield was