Two-year-note auction during session seen getting good demand
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices jumped on Tuesday, pushing 10-year yields to the lowest since April 2009, as investors fled stock markets and the euro on concerns about tensions in Korea, Spanish bank worries and rising stresses in inter-bank lending markets.
Yields on 10-year notes (UST10Y 3.14, -0.06, -1.75%) fell 8 basis points to 3.13%. They earlier touched 3.07%, the lowest in 13 months. Bond yields move inversely to prices and a basis point is 0.01%.
Yields on 2-year notes (UST2YR 0.72, -0.02, -2.31%) declined 2 basis points to 0.71%, after falling as low as 0.67% earlier - the lowest since December. The two-year yield's all-time low, reached during the depths of the financial crisis, was 0.65%.
Yields on 30-year bonds (UST30Y 4.04, -0.05, -1.17%) fell 7 basis points to 4.03%, after dipping below 4% earlier and touching a 7-month low.
Following on Monday's failure of a Spanish regional lender, the International Monetary Fund warned that Spain must do more to accelerate the consolidation of its banking sector.
Also, demand for the relative security of U.S. debt rose following news reports Tuesday that the North Korean government ordered its citizens and troops last week to be ready for combat. That followed South Korea's move to suspend trade ties with the North. Read more about Korea.
Additionally, more attention is being paid to the rising cost that banks charge each other for loans, namely the 3-month London interbank offered rate for dollars. Other money-market rates, including a key metric for corporate debt markets, also jumped to the highest in a year. Read about Ted spread, swap spreads.
The market's focus is "on the uneasiness of the Libor fixing with the Spanish bank consolidation in place indicative of ongoing crisis mode in Europe," said John Spinello, Treasury strategist at Jefferies & Co.
The euro (CUR_EURUSD 1.2250, -0.0092, -0.7454%) traded at $1.2236, down from $1.2399 late Monday, opening up the prospect of a test of the four-year low near $1.2144 set on May 19. Read about dollar, euro.
Auction on tap
The bond market also readied for the first of three big note auction this week, beginning with the sale of $42 billion 2-year notes later in the session.
The amount is $2 billion less than last month's sale of the securities.
Bids are due at 1 p.m. Eastern time. See results from recent auctions.
Still, the U.S. securities are likely to look attractive to investors, especially to America's biggest buyers in Asia, compared to yields in high-grade European countries, according to David Ader and Ian Lyngen, bond strategists at CRT Capital Group.
U.S. 2-year yields are still higher than Germany's at 0.43% and France's 0.58%.
U.S. 2-year notes yield 63 basis points more than comparable Swiss debt, according to CRT.
The key metric to watch following auctions to gauge demand from foreign central banks is how much of the sale goes to a group called indirect bidders.
"Watch indirect bidding in 2-year notes and the rest of the auctions because the interest we anticipate won't be about value in U.S. centric terms," Ader and Lyngen wrote in a note.
At the last four auctions of 2-year debt, each for $44 billion, indirect bidders bought an average of 40.6% of the sale.
Direct bidders, a group that include domestic money managers, purchased an average of 13.6% at the last four sales, according to CRT.
Overall, bidders offered to buy an average of 3.12 times the amount of debt sold at the last four auctions.
