US Treasury Sells $742B in Securities as T-Bill Yields Lag Surging Inflation

The US government auctioned $742 billion in Treasury securities last week, comprising $504 billion in Treasury bills (4- to 26-week maturities) and $238 billion in Treasury notes (2- to 7-year maturities). T-bill issuance rebounded to January levels after a tax-season lull, as the Treasury General Account balance fell to $850 billion, below the $900 billion target. Inflation accelerated in April, with the PCE price index and CPI both at 3.8%, nearly double the Fed's 2% target. T-bill yields now trail inflation across all maturities. The bond market anticipates multiple rate hikes later this year, as signaled by the 2-year Treasury note auction yield of 4.07%—above the Fed's target range of 3.50-3.75%—implying at least two rate hikes. The 26-week yield has exceeded the effective federal funds rate since March, indicating a rate hike within four to five months. The 10-year yield fell 11 basis points to 4.45%, while the 30-year yield closed at 4.99%, hovering near 5%. The Fed's April FOMC meeting revealed a split, with hawkish dissenters pushing to remove the easing bias from the statement. Fed speakers have since shifted more hawkish. The 2-year Floating Rate Note sold at a spread of 0.103%, with interest resetting weekly based on 13-week T-bill yields.