U.S. Treasury yields closed mostly higher Friday as corporate underwriters sold Treasurys in anticipation of heavy corporate debt issuance next week.
Due to the Thanksgiving holiday, the Securities Industry and Financial Markets Association recommended that the bond market shutter on Friday at 2 p.m. Eastern.
The 10-year Treasury note yield TMUBMUSD10Y, +0.73% rose 1.2 basis points to 1.778%, while the 2-year note yield TMUBMUSD02Y, -0.95% was down 2.2 basis points to 1.602. The 30-year bond yield TMUBMUSD30Y, +0.46% climbed 1.3 basis points to 2.04%, while notching its largest three-month yield gain since November 2018, according to Dow Jones Market Data.
In Europe, the 10-year German government bond yield TMBMKDE-10Y, +0.50% ticked up 0.5 basis point to negative 0.359%, while the rate for the equivalent British maturity TMBMKGB-10Y, +3.32% was up 2.8 basis points to 0.699%.
Market participants said the Treasurys market saw some modest pressure due to “rate-lock” selling. Ahead of a major corporate debt issue, dealers temporarily sell U.S. government paper to lock in the borrowing rate of the bonds they are underwriting. Once the bond is sold, the dealer repurchases the Treasurys again, unwinding the “rate lock.”
“There’s talk of fairly decent corporate supply in the weeks of December. What’s mostly going on is ‘rate locking’ ahead of next week,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.
Di Galoma said underwriters typically entered these hedges on the Friday before the week of busy issuance.
Market participants also were eyeing negative news out of Europe on Friday, as well as international trade developments, after President Donald Trump signed off on the Hong Kong Human Rights and Democracy Act, a bill supporting protesters in the Asian financial center. Many remain worried that tensions over Hong Kong could undermine recent progress in trade negotiations.
John Carey, a portfolio manager at Amundi Pioneer, pointed to mass layoffs announced by German automaker Daimler AG DAI, -1.46% on Friday as a concerning sign in Europe, but also cautioned that any market moves could be exaggerated in light holiday trade.
“We’ll have to wait until Monday to get a better sense of market tone,” he told MarketWatch.
Meanwhile, a report in the Wall Street Journal suggested Chinese officials were still seeking a trade deal.