Monday, December 17, 2018
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Treasuries Trade Little Changed Before $64 Billion of Debt Sales

Treasuries were little changed before the U.S. auctions $64 billion of coupon-bearing securities during three days starting today.

Benchmark 10-year note yields rose earlier after touching a more-than-one-week low yesterday before the Federal Reserve releases the minutes of its March policy meeting tomorrow. The central bank has signaled a potential interest-rate increase for next year after making a third cut last month to the debt-purchase program it uses to support the economy. The Treasury plans to sell $30 billion of three-year notes today, $21 billion in 10-year debt tomorrow and $13 billion of 30-year bonds April 10.

"Some auction pressure may be impacting yields in the U.S.," said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York. "Rates are starting to back up. You'll see a bounce in yields ahead of supply."

U.S. 10-year yields were little changed at 2.70 percent as of 9:53 a.m. in New York, according to Bloomberg Bond Trader data. The price of the 2.75 percent note due in February 2024 traded at 100 3/8. The yield fell to 2.68 percent yesterday, the lowest since March 28.
Note Sale

The three-year notes scheduled to be sold today yielded 0.90 percent in pre-auction trading, versus 0.802 percent at a previous auction on March 11, the highest rate since September.

Last month's auction drew bids for 3.25 times the amount offered. Primary dealers, those companies that are obligated to underwrite U.S. debt, purchased 54.6 percent of the securities, the most since June at the monthly auctions.

"The auctions will go well," said Soeren Moerch, head of fixed-income trading at Danske Bank A/S in Copenhagen. "The five- to 30-year curve flattened 40 basis points this year, so 30 years are not attractive for me." Moerch said he prefers three- and 10-year debt. A basis point is 0.01 percentage point.

U.S. three-year notes have returned 0.2 percent this year through yesterday, according to Bank of America Merrill Lynch indexes. Ten-year notes gained 3.7 percent, and 30-year bonds earned 8.3 percent, the data show.

The yield difference between 30-year bonds and five-year notes was 188 basis points after touching 191 basis points yesterday, the widest since March 21. The gap shrank to 178 basis points on March 31, the narrowest since October 2009.
Fed Funds

Traders' wagers put the likelihood the Fed will start raising rates in June 2015 at 52 percent, based on futures trading on the CME Group Inc.'s exchange, compared with 54 percent on April 4. The Fed has kept its target for overnight lending between banks in a range of zero to 0.25 percent since 2008.

Fed policy makers at their March 18-19 meeting reduced monthly bond purchases by $10 billion to $55 billion. Fed Chair Janet Yellen said the central bank may start to increase interest rates "around six months" after ending its asset-buying program.

Treasuries rose yesterday as investors bet jobs growth is slow enough to deter the Fed from accelerating cuts in its bond-purchase program. U.S. debt extended a rally from April 4, when a report showed employers added 192,000 jobs last month, less than the 200,000 projected by a Bloomberg News survey of economists.

Yusuke Ito, a senior fund manager in Tokyo at Mizuho Asset Management Co., said he prefers Treasuries due in 10 years and more, the longest part of the range of maturities known as the yield curve.

"Inflation pressures are very weak, and that's going to drive the longer end of the curve down," he said. Mizuho has the equivalent of $38.9 billion in assets.

The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was little changed at 2.13 percentage points. The average during the past decade is 2.21 percentage points.

To contact the reporters on this story: Susanne Walker in New York at This email address is being protected from spambots. You need JavaScript enabled to view it. ; Eshe Nelson in London at This email address is being protected from spambots. You need JavaScript enabled to view it.

To contact the editors responsible for this story: Dave Liedtka at This email address is being protected from spambots. You need JavaScript enabled to view it. Paul Cox, Greg Storey

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