MW: Treasurys hover ahead of auction and no debt deal
To-be-auctions notes hover near lower yield ever for an auction
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Long-term Treasury prices reversed a decline on Tuesday, with nervousness about the lack of progress over government debt talks balanced by a more sanguine outlook on demand for an auction of short-term paper due later in the session.
The Treasury Department’s sale of 2-year notes, which are near record lows, “will be an interesting acid test of market conditions,” said Bill O’Donnell, head of Treasury strategy at RBS Securities.
Yields on 10-year notes 10_YEAR -1.03% , which move inversely to prices, rose to 3.04% earlier but lately sat little changed at 3.01%.
Thirty-year bond yields 30_YEAR -0.76% fell 1 basis point to 4.31%. A basis point is 1/100th of a percentage point.
Yields on 2-year notes 2_YEAR -0.97% were little changed at 0.41%.
“The front-end trading well into supply does indicate that the 2-year auction is well under-written,” said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities.
Bond traders’ attention remains on whether Washington will approve a plan that can avoid a downgrade of the U.S.’s AAA rating.
President Barack Obama and House Speaker John Boehner touted rival plans to cut the U.S. deficit and lift the debt ceiling. Some analysts worry whether either will stave off a downgrade of the U.S. credit rating, which is a benchmark for a wide range of assets and borrowing rates. Read story on Obama, Boehner plans.
The government will sell $35 billion in 2-year notes at 1 p.m. Eastern, the first of three auctions this week.
Some have more doubts that the auction will go smoothly.
“Some say that uncertainty breeds contempt and one can clearly taste a whiff of contempt in the marketplace of today,” O’Donnell said.
But in spite of the political climate, the security is trading not far above the lowest yields on record. The to-be-issued notes are trading below the level where last month’s auction came -- at a tie for the lowest ever for a 2-year auction.
While some say low yields indicate a continued faith in the U.S. government, it also makes some investors find the securities less attractive. That may be the factor that saps demand.
With yields on the securities so low, “we face another relatively hard-to-swallow 2-year auction,” O’Donnell said.
