U.S. to sell 3-year notes at highest yield in several months
By Deborah Levine, MarketWatch
SAN FRANCISCO (MarketWatch) — Treasury prices edged up Tuesday ahead of a government auction seen by some as a gauge of investors’ opinion on the Federal Reserve’s latest policy moves and comments.
It’s the first auction since the Fed stopped selling short-term securities at the end of 2012, and the first since last week’s minutes hinted at the Federal Open Market Committee’s consideration of completing its bond buying by the end of this year.
Yields on 10-year notes 10_YEAR -0.68% , which move inversely to prices, fell 2 basis points to 1.88%, coming off their highest level in several months.
A basis point is one one-hundredth of a percentage point.
Yields on 30-year bonds 30_YEAR -0.55% declined 2 basis points to 3.08%. Five-year yields 5_YEAR -0.61% fell 1 basis point to 0.80%.
The Treasury Department will auction $32 billion in 3-year notes 3_YEAR -1.26% at 1 p.m. Eastern time. See recent Treasury auction results.
Government auctions are a snapshot of demand for U.S. debt, with attention being paid to details such as how much debt investors were willing to buy at the day’s yields, and in particular how much demand came from foreign investors and domestic money managers.
Yields on the current 3-year note slipped 1 basis point to 0.39%. If the new debt closes near that level, it will be the highest in several months, which would tend to bring in buyers, analysts said.
“There could be decent interest at the auction as the recent yield rise, due to an over-reaction about future Fed policy, could draw in some demand,” said George Goncalves, a bond strategist at Nomura Securities.
Minutes released last week spooked the market into worrying about the end of the Fed’s quantitative easing program, possibly by the end of this year. Some analysts said that shouldn’t have been a shock, but nonetheless it’s pointed to as one of the reasons for the big jump in bond yields last week. Read: Bonds caught between auctions, long-term outlook.
“It will also be interesting to see if the FOMC minutes cool the passions of auction buyers,” said Bill O’Donnell, a bond strategist at RBS Securities.
However, in the background as it has been for a long time, the Fed continues to buy Treasury bonds, lending support to the market.
“It strikes us as at least interesting that just a few days after the market gets spooked by the FOMC minutes and what they may or may not do in the second half of the year, we have a particularly large week of purchases which serve as a reminder that it ain’t over until the fat lady sings,” said David Ader, head of government bond strategy at CRT Capital Group. “We still have the Fed to contend with as a bullish force for two quarters further at the least.”
The government will continue its auctions with a sale of 10-year debt on Wednesday and finish by selling 30-year bonds on Thursday.
Deborah Levine is a MarketWatch reporter, based in San Francisco. Follow her on Twitter @dlevineMW.
