Thirty-year auction coming with yields near three-month highs
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices fell modestly on Thursday, pushing long-term yields to their highest since October, after Greek leaders said they finally came to an agreement on austerity measures needed to avoid defaulting on an upcoming debt payment..
“This deal certainly eases some of the near-term risks to the market, making high quality instruments like Treasurys slightly less appealing,” said Kevin Giddis, president of Morgan Keegan’s fixed-income capital markets.
The main U.S. event for the bond market, however, is the government’s 30-year bond auction later in the session.
Thirty-year bond yields 30_YEAR +0.64% , which move inversely to prices, rose 2 basis points to 3.18%, near their highest level since late October. A basis point is one one-hundredth of a percentage point.
Yields on 10-year notes 10_YEAR +2.37% pared an earlier rise to sit little changed at 2.03%.
The benchmark securities’ yields haven’t closed above 2% since Jan. 25.
Yields on 5-year notes 5_YEAR +0.96% were near unchanged at 0.85%.
The euro EURUSD +0.17% first jumped after a media report that Greek politicians would announce an austerity deal shortly, then higher after European Central Bank President Mario Draghi confirmed that a deal had been reached. Read more on euro, Greece.
Greece’s prime minister confirmed a deal had been made. A meeting of euro-zone finance ministers to discuss the package of reforms, is coming up during the session.
“We remain at the mercy of the euro-zone crisis, with Greece’s negotiations keeping the markets on edge,” said George Goncalves, head of U.S. rates strategy for Nomura Securities. “We think a solution should be reached in the near term which should help the market break out of the current range toward our near-term target of 2.16% on 10-year yields.”
Treasury prices showed little reaction to a U.S. report showing first-time jobless claims unexpectedly fell last week to 358,000. See story on jobless claims.
The data came out at the same time that Draghi began his press conference. He sounded cautious on Europe’s economic outlook but did ease collateral requirements for the central bank’s next long-term liquidity operation, as many expected. Read about ECB, Draghi.
Thirty-year bond auction
The Treasury Department will sell $16 billion in 30-year bonds during the session, with bids due at 1 p.m. Eastern time. See recent Treasury auction results.
At the last four sales of new 30-year bonds, bidders have offered to buy an average of 2.36 times the amount of debt sold, according to CRT Capital Group.
Indirect bidders, a group which includes foreign central banks, bought 29.2% of recent sales, on average.
Direct bidders – a class which includes domestic money managers -- purchased another 13% on average.
A higher proportion of auctions going to direct and indirect bidders is considering good for the auction, and the government, because those buyers tend to hold onto the debt for longer.
The majority of the remaining debt sold is bought by primary dealers, who often turn around and sell newly-acquired debt into the market, pressuring prices lower.
The sale is the last in the government’s quarterly refunding series. The U.S. sold 10-year notes Wednesday and 3-year debt in the prior session. Read about 10-year auction.
Deborah Levine is a MarketWatch reporter, based in New York.
