September is on pace to be worst month for Treasurys of the past year

There is still one more trading session left for the month — Friday’s — but it’s not looking good.

Based on the Bloomberg U.S. Treasury Total Return Index, which bond traders use to measure their own performance, Treasurys are on track to end September with bigger losses than those seen in February.

The Bloomberg index is down 2.5% for the month as of the most recent data, surpassing February’s 2.3% drop. The index does not reflect outright changes in prices across Treasurys. Rather, it uses adjustments to standardize the results and to help better capture what the universe of U.S. government debt did over a given month.

This month’s bearish momentum in government debt “has been relentless, with an especially significant selloff the past week” following the Federal Reserve’s Sept. 20 policy decision, said macro strategist Will Compernolle of FHN Financial in New York. “Markets are showing more confidence in the Fed’s message of a ‘higher for longer’ fed funds rate.”

Back in February, the month prior to the collapse of California’s Silicon Valley Bank, a blockbuster nonfarm payrolls report for January and still-hot inflation report for the same month had traders and investors revising their expectations in the direction of further tightening by the Federal Reserve.

“What caused a lot of the Treasury weakness in February was in the shorter end of the curve, with changing fed funds rate expectations,” Compernolle said via phone on Thursday. “Now, in September, the changes are at the longer end of curve on a fed funds rate that’s higher for longer and inflation.”

“When we talk to banks, they are trying to stay steady and are not adding anything to their balance sheets,” he said. “They are in a compressed net-interest margin world where they’re just trying to survive until the Fed starts cutting rates because the wiggle room for taking risks is so narrow.”

Thursday’s initial selloff in intermediate- and long-term Treasurys faded by late afternoon in New York as buyers emerged — leaving 10- and 30-year rates near multiyear highs. Meanwhile, all three major U.S. stock indexes
DJIA

SPX

COMP
finished higher, led by a 0.8% rise in the Nasdaq Composite.