U.S. 30-year auction coming up
By Deborah Levine, MarketWatch
SAN FRANCISCO (MarketWatch) — Treasury prices extended losses on Thursday, pushing yields up, after first-time jobless claims dropped sharply in the latest week, adding to evidence that the U.S. labor market is rebounding.
The data also buoyed U.S. equities which, alongside news from Europe, lessened investors’ demand for the relative safety of Treasury debt.
Yields on 10-year notes 10_YEAR +2.98% , which move inversely to prices, rose 5 basis points to 1.73%. A basis point is one one-hundredth of a percentage point.
Thirty-year yields 30_YEAR +1.56% increased 4 basis points to 2.92%.
Yields on 5-year notes 5_YEAR +5.84% rose 4 basis points to 0.68%.
Thursday’s move up in yields was a giveback of the prior session’s move down, which stemmed from a solid auction of 10-year notes and a slide in U.S. stocks. Read: Treasury bonds firm as Fed suggests modest growth.
The main bit of news late Wednesday was that Standard & Poor’s downgraded Spain’s debt rating to one notch above junk status. That boosted market optimism that Spain will have to request a much-awaited bailout and trigger the European Central Banks’s sovereign debt purchases under its outright monetary transactions program. Riskier assets like the euro and stocks have gained ground since the ECB essentially agreed to be the buyer of last resort and prevent another funding crisis in Europe. Read: Why bad news for Spain is good news for euro.
“While this news juiced the market higher in Asia and early Europe, strong Italian auctions and talk of Spain now being pressured to request aid and activate the OMT has boosted the euro and weighed on bonds,” said Richard Gilhooly, director of interest-rate strategy at TD Securities. Read: Dollar slips; euro takes Spain downgrade in stride.
Long-bond auction
Also working against bonds, at 1 p.m. Eastern time, the U.S. government will auction 30-year bonds. Traders tend to try and set up for auctions by selling existing holdings of a maturity to get a better price.
“We expected a weak 10-year auction on Wednesday, and were somewhat surprised by the strength in demand, and thus are more cautious about the bond auction,” said George Goncalves, a bond strategist at Nomura Securities. “Yield levels remains low, especially in light of the recent economic data,” he said.
However, near-constant purchases of longer-term bonds by the Federal Reserve under its asset-purchase plan “and general risk-off backdrop (where 30-year bonds tend to be the best expression for those with bond bullish proclivities) could support this auction,” he wrote in a note.
Deborah Levine is a MarketWatch reporter, based in San Francisco.
