MW: Treasurys gain on weak data; 5-year auction ahead
By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) — Treasurys strengthened slightly Wednesday morning as the market prepared for an afternoon auction of $35 billion in 5-year notes.
Treasurys had begun the day lower, as they tracked the German bund BX:TMBMKDE-10Y -1.11% , which sank briefly on a global equity rally in anticipation of an interest-rate cut by the European Central Bank.
But the release of a U.S. durable goods report showing a disappointing 5.7% drop in orders pushed Treasurys into positive ground. Economists surveyed by MarketWatch had expected a 3.2% drop in orders, but volatility in the transportation sector, particularly jetliner bookings, pushed the data downward.
“The question going forward is how much of the miss is attributable to external factors compared to domestic issues,” wrote Andrew Wilkinson, chief economic strategist at Miller Tabak & Co., in a report. “Arguably, the international headwinds are tougher than those related to the onset of sequester. “
The 10-year Treasury note 10_YEAR -0.29% yield was less than a basis point down at 1.701%, while the 30-year bond 30_YEAR -0.14% yield was less than a basis point down at 2.898%.
The 5-year note yield 5_YEAR -1.00% was nearly 1 basis point down at 0.692% ahead of the auction.
U.S. stock futures erased gains on the news, tamping down enthusiasm for positive earnings reports from Boeing Co. BA +3.71% and Ford Motor Co. F +0.60% .
The 5-year note auction at 1 p.m. Wednesday is the second of three auctions this week, following a $35 billion auction of 2-year notes Tuesday and ahead of a $29 billion of 7-year notes Thursday.
Low yields could make it difficult to entice buyers of the 5-year notes, but there are some tailwinds for the auction, said William O’Donnell, head Treasury strategist at RBS, in a note. Namely, domestic fund managers have been snatching up 5-year notes of late, and there has been little tail in recent 5-year note auctions, meaning the spread between the higher auction yield and the broader market has been minimal.
Ben Eisen is a MarketWatch reporter based in New York.
