Demand for Treasury’s Auction Weak as Traders Expect an Interest Hike this Year
The U.S Treasury's auction of two-year notes failed to generate expected steam as demand remained the lowest since 2008. It resulted mostly because bond traders bet that this week, Federal Reserve policy makers will admit there are signs of economic strength which has a direct relation to the Federal Reserve's consideration of an increase in the interest rate this year.
There was one more reason why buyers' appetite has faded. The global financial markets are now more or less stabilized after absorbing the shock of Britain's Brexit vote where Britons decided to leave the E.U.
Several readings forwarded economists sentiments hinted at strength and the recent U.S. labor data was also strong giving support to the idea that the economy is moving ahead at great strides.
Even the Citigroup Inc. U.S. Economic Surprise Index, which is a gauge for whether data will surpass or miss analyst forecasts, has reached its highest level since 2014.
Aaron Kohli, a fixed-income strategist in New York at BMO Capital Markets said that results from the auction "suggest quite a bit of weakness, which partly highlights the uncertainty from the Fed." BMO Capital Markets is among the twenty three primary dealers which trade with the Fed.