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Bond Report
May 13, 2010, 4:28 p.m. EDT
Treasurys gain after 30-year bond auction
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices turned higher in afternoon trading on Thursday, pushing yields back down, amid lingering concerns about the ability of Europe to solve its fiscal imbalances.
Long-term bonds briefly declined after the government had to pay a higher yield than traders expected at its auction of 30-year bonds.
Yields on 2-year debt (U.S.:UST2YR) fell 3 basis points to 0.84%.
Uncertainty about the situation in Europe has tended to prompt a shift out of assets considered riskier and into those perceived as safer, including U.S. Treasury bonds. The U.S. dollar rose to the highest level in more than a year. Read about euro, dollar.
“There is talk of cash coming over from Europe seeking the safety of Treasurys as well as the higher yields,” said strategists at Action Economics.
German bunds maturing in 10 years yield 2.88%, while 30-year bonds yield 3.73%.
The current U.S. 30-year bond (U.S.:UST30Y) yields 4.44%, down 5 basis points on the day.
Auction results
The Treasury Department sold $16 billion in 30-year bonds on Thursday at a yield of 4.490%, a little higher than traders anticipated. See bond auction results.
Bidders offered to buy 2.60 times the amount of debt sold, the best for a new sale in two years and compared to 2.33 times at the last four sales of new 30-year bonds.
Indirect bidders, a class of investor that includes foreign central banks, bought 32.5%, versus 38.4% on average at the last four comparable auctions. Direct bidders, which includes domestic money managers, purchased another 21.8%, compared to a recent average of 12.3%.
It’s generally deemed better for the broader bond market when more of an auction is sold to direct and indirect bidders, who are more likely to hold onto the securities, rather than sold to primary dealers, which often have to turn around and sell them into the secondary market, pressuring prices.
This week, the government received good demand at its sales of 3-year notes (U.S.:UST3YR) and 10-year debt, which were both for smaller amounts than the previous, comparable sales. Read about 10-year auction results.
Analysts also tuned in to comments on the economic outlook or monetary policy from Federal Reserve officials slated to speak during the session.
The U.S. central bank is watching consumer expectations about inflation closely and any deterioration would be a matter of concern, Fed Vice Chairman Donald Kohn said in a speech. Even though the Fed doesn’t “put much stock” into simple theories that excess reserves might automatically lead to inflation, these concerns may sway investors, Kohn said. Read more from Fed’s Kohn.
Minneapolis Fed President Narayana Kocherlakota said there “seems to be little threat of inflation” and he supports the Fed’s decision at its meeting last month to retain the pledge that interest rates could stay low for “an extended period.”
Treasurys stayed modestly higher after the Labor Department said 444,000 Americans filed first-time claims for unemployment benefits in the latest week, down from a revised number the previous week. Economists surveyed by MarketWatch expected claims to declined to 440,000.