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Yields Rise on $34B Sale of Three-Year Notes

This article was originally published on ETFTrends.com.

Benchmark Treasury yields rose as the U.S. Treasury Department is in the midst of selling off $34 billion worth of 3-year Treasury notes. The benchmark 10-year Treasury yield rose to 2.971 while the 30-year note reached 3.117 as of 2:15 p.m. ET.

Today's sale of 3-year notes represents the largest auction of that particular note in the last eight years. In addition to today's sale, the Treasury will sell a record amount of 10-year notes worth $26 billion on Wednesday followed by an all-time high of $18 billion in 30-year notes on Thursday--all auctions are part of a $78 billion quarterly government refunding effort, which are expected to go off without a hitch.

"All three auctions should go fine," said Mike Lorizio, head of U.S. Treasuries trading at Manulife Asset Management in Boston. "The three-year auction has been an easy one."

Related: Possible Carnage in the Bond Market

Analysts expect the 3-year note auction to recover from the previous month's poor results, which saw the note fall to its lowest level since April 2009. The prevailing sentiment is that Federal Reserve Chair Jerome Powell is set to raise interest rates two more times through 2018, which has decreased interest in the 3-year notes as of late.

Corporate Fixed-Income ETFs Gain

While investors have been fleeing from the safe haven of government debt, riskier assets with higher yields have been benefiting like corporate bond-focused fixed-income ETFs. The ProShares Investment Grade—Intr Rt Hdgd (IGHGgained 0.24% today, as did the ProShares High Yield—Interest Rate Hdgd (BATS: HYHG)--up 0.41% and the iShares Intermediate Credit Bond ETF (CIU)--up 0.16%.

IGHG investment seeks investment results that track the performance of the Citi Corporate Investment Grade (Treasury Rate-Hedged) Index, which is comprised of long positions in USD-denominated investment grade corporate bonds issued by both U.S. and foreign domiciled companies and short positions in U.S. Treasury notes or bonds.CIU seeks to track the investment results of the Bloomberg Barclays U.S. Intermediate Credit Bond Index. The ETF’s focus is on investment-grade corporate debt and sovereign, supranational, local authority and non-U.S. agency bonds that are U.S. dollar-denominated and have a remaining maturity of greater than one year and less than or equal to ten years.

HYHG tracks the performance of the Citi High Yield (Treasury Rate-Hedged) Index and allocates 80% of its total assets in high-yield bonds and short positions in Treasury Securities in order hedge against rising rates. Because HYHG invests in high-yield bonds, there is credit risk associated with the higher yield since the fund invests in corporate issues that are less than investment-grade. By targeting a duration of zero, HYHG offers less interest rate sensitivity versus its short-term bond peers.

For more trends in fixed income, visit the Fixed Income Channel.