By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices fell on Wednesday, pushing yields up slightly, as worried investors held positions in anticipation of a deal in Washington to avert a default, and hopefully avoid a downgrade of the U.S. credit rating.
Traders also expect decent demand at the government’s 5-year note auction later in the session, while noting longer-dated debt may have more trouble finding demand than shorter-dated securities.
Yields on 10-year notes 10_YEAR +0.68% , which move inversely to prices, rose 4 basis points to 2.99%. A basis point is 1/100th of a percentage point.
Yields on 2-year notes 2_YEAR +9.85% added 1 basis point to 0.43%.
Thirty-year bond yields 30_YEAR +0.40% increased 3 basis points to 4.32%.
A vote on the House Speaker John Boehner’s plan for raising the federal debt limit — expect to be hit in less than a week, by the Treasury Department estimate — has been postponed after the nonpartisan Congressional Budget Office said it won’t cut spending as much as the Republican leader contended. Read more on CBO verdict on Beohner plan.
Conservatives has already lined up against the plan, saying it doesn’t go far enough, according to a Wall Street Journal report. See WSJ story on GOP rebelling against debt-ceiling plan.
Meanwhile, Senate Majority Leader Harry Reid may try to pass his own plan through the Democratic-controlled chamber, while the White house is reportedly working on an alternative that combined elements of existing proposals.
“It’s a wait for the debt issue to be hurdled and then a response to the details of what that looks like,” said David Ader, head of government bond strategy at CRT Capital Group. “Is it enough to stave off downgrade, will it be large enough to hurt the economy, will either side recognize how irresponsible their leadership looks in the eyes of the world?”
“We in the market firmly believe that one side will cave in on the budget thing and soon,” he said. “To be sure, we don’t care anymore which side it is just as long as we get over this process.”
“Trust, there will be no winners even if one side or the other claims victory; they both will lose in the eyes of the market, country, the world,” Ader said.
Later, the Treasury Department will close its auction of 5-year notes 5_YEAR +1.28% at 1 p.m. Eastern time.
“With no apparent lifting of the veil of uncertainty in the debt-ceiling shenanigans, today’s 5-year auction will undoubtedly test the mettle of the markets,” said Bill O’Donnell, head of Treasury strategy at RBS Securities.
Tuesday’s 2-year notes sale received decent demand, especially from a group that includes domestic money managers. Read about demand at 2-year note auction.
However, longer-dated debt tends to be more sensitive to longer-term concerns like a country’s deficits. So Thursday’s sale of 7-year notes 7_YEAR +0.76% , and perhaps of the 5-year notes, could see a more tepid reception.
Deborah Levine is a MarketWatch reporter, based in New York.
