Treasuries Fall Before Auction as Oil Rebounds, Amazon to Borrow

Treasuries fell as oil prices climbed on signs of renewed threats to Middle East supply and as Amazon.com slated a corporate bond offering expected to raise at least $25 billion.

The selloff lifted yields by about three to four basis points across maturities, increasing the likely result of an auction of three-year Treasury notes at 1 p.m. New York time. The 30-year bond’s yield hovered around 5%, which it hasn’t closed above since early June. Longer-dated yields declined last month as falling oil prices cooled inflation expectations.

Renewed warfare in the Strait of Hormuz halted that trend, lifting US benchmark West Texas Intermediate crude oil futures by more than 2% Tuesday. Treasury yields also faced upward pressure from corporate bond supply, particularly after Amazon’s eight-part sale was announced, including 10-, 20-, 30- and 40-year tenors.

“Lots of different things in the mix this morning but each one skews in the bearish direction,” said Izaac Brook, an interest-rate strategist at RBC Capital Markets.

In addition to oil prices and supply from the Treasury and corporate markets, they include rising European bond yields and NATO allies’ commitment to at least $50 billion in defense spending. The 4.5% and 5% thresholds are key for 10- and 30-year Treasuries, and there appears to be “less willingness to defend those levels from a tactical perspective,” Brook said.

The Amazon offering — the latest in a series of jumbo bond sales by massive cloud computing firms — took the corporate bond market by surprise, insofar as dealer forecasts for volume this week were in the $20 billion to $25 billion range, and about $12 billion was sold Monday.

The $58 billion three-year note auction, the first of the US government’s seven major longer-term debt sales in July, was indicated to draw a yield of about 4.18%. On Monday the indicated yield was as low as 4.13%.

Auctions of 10-year notes and 30-year bonds are scheduled for Wednesday and Thursday. The 10-year trades around 4.52%. Last month’s sale of the tenor drew 4.538%.

“Supply concessions end up being a buying opportunity, especially around clean numbers like 4.5% and 5%” for the 10- and 30-year tenors, said George Goncalves, head of US macro strategy at MUFG.