Treasuries Curve Steepens to Level Last Seen in February 2016

(Bloomberg) -- A widely watched segment of the Treasury yield curve reached its steepest level in almost five years Wednesday even as the U.S. decided not to increase auction sizes for long-maturity notes and bonds at next week’s quarterly refunding sales.

The gap between 5- and 30-year yields rose above 146 basis points, touching the widest since February 2016. It widened even after the Treasury’s announcement, which a number of primary dealers had predicted would reveal another round of increases even as the majority of those surveyed saw officials standing pat.

The curve has been on a steepening trend since July, mostly staying above its 55-, 100- and 200-day moving averages. Drivers include improving prospects for another round of pandemic-relief spending as well as rising expectations for consumer-price gains, which have been reflected in higher breakeven inflation rates for inflation-linked debt.

“The curve is moving on the idea that the stimulus plan is going to get done and inflation is starting to gain steam,” said Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings. “The front end of the curve is anchored because the Federal Reserve can’t raise rates, but the back end is vulnerable to selling off because of the perception that inflation is building.”

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