Treasuries Down Before $26 Bln Note SaleNEW YORK (Reuters) - U.S. Treasury prices fell on Wednesday as dealers turned defensive before a $26 billion sale of two-year U.S. government debt.
Selling at the short end of the maturity range led the way lower, as some would-be bidders concluded they might be able to stay away from the auction and buy the new two-year notes more cheaply in the future, traders said. The results of the auction of two-year paper are released at 1 p.m. (1700 GMT). The current two-year note has tumbled in price in recent weeks as the market has priced in a greater likelihood of an early interest rate rise from the Federal Reserve. In when-issued trade, the two-year notes to be sold at 1 p.m. EDT (1700 GMT) were yielding 2.265 percent. While some bidders may stay away from Wednesday's auction, yields have climbed over 0.70 percentage point since the last sale in March and could prove attractive to yield-hungry investors. Mark Mahoney, Treasury market strategist at UBS, thinks the recent flattening of the yield curve has gone too far and that therefore there is value in the new notes. "We expect today's two-year auction to be well sponsored," said Mahoney, noting the when-issued yield around 2.24 percent was one of the highest since late 2002. The previous auction in March drew bids for 2.18 times the amount on offer and traders are hoping this sale will at least beat the average of last year at 1.9. Mahoney was optimistic on foreign demand, including demand from central banks. "Foreign accounts should take just over 25 percent of the auction and buying among foreign central banks should be broad-based," he says. "At most, we would expect a 10-percentage point drop in the indirect bid," he added. Indirect bidders took a relatively high 43.5 percent of the March auction compared to an average of 37 percent for the last 11 sales. Indirect bidders include customers of primary dealers and foreign private and official bidders, but has come to be seen as largely an indicator of demand from offshore central banks. Still, not everyone was as confident about the auction and sought to cheapen prices to make it more attractive. The current two-year note <US2YT=RR> dipped 3/32 in price, edging its yield up to 2.19 percent from 2.15 percent late Tuesday. Yields on the five-year note <US5YT=RR> rose to 3.53 percent from 3.49 percent. The benchmark 10-year note <US10YT=RR> lost 11/32 in price, taking its yield to 4.43 percent from 4.39 percent. The 30-year bond <US30YT=RR> shed 16/32, lifting its yield to 5.24 percent from 5.20 percent. News that hurt commodity prices did not appear to be affecting Treasuries. Premier Wen Jiabao told Reuters in an interview on Wednesday that China may take forceful action to cool its red-hot economy, a development which would likely limit money available for steel, cement and aluminum projects. The short-covering and position adjustments which lifted prices the last two sessions had also run their course, leaving investors with little to do but wonder how strong U.S. growth data were likely to be when released on Thursday. Analysts expect GDP growth hit 5.0 percent annualized in the first quarter, up from 4.1 percent the quarter before, but forecasts stretch as high as 6.0 percent.
Some also suspect that the GDP inflation indicators will also rise, perhaps sharply. If so, that would likely alarm a bond market already sensitized to inflation by unexpectedly strong consumer price figures. © Copyright 2004 Reuters. Reuters content is the intellectual property of Reuters or its third-party content providers. Any copying, republication, or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters.
|
