MW: Treasurys rise before auction tests buyer demand
By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) — Treasury prices rose Wednesday ahead of an auction of 10-year notes that may shed light on the depth of buyer demand for longer-term Treasurys amidst monetary-policy uncertainty.
The 10-year note 10_YEAR -0.57% yield, which moves inversely to price, fell 1.5 basis points on the day to 2.632%. The 30-year bond 30_YEAR -0.54% yield fell 2 basis points to 3.714%, while the 5-year note 5_YEAR -0.93% yield fell 1 basis point to 1.381%.
The Treasury Department’s sale of $24 billion in 10-year notes Wednesday follows a successful sale of $32 billion in 3-year notes 3_YEAR +3.99% that pushed the market higher on Tuesday, and precedes a $16 billion auction of 30-year bonds on Thursday.
The test of buyer demand comes as market participants scour the economic landscape for signs of when the Federal Reserve will move to scale back its bond-purchase program, which has helped hold yields down.
Fed speakers on Tuesday sought to prepare the market for so-called tapering before the end of the year. Chicago Fed Bank President Charles Evans, who is particularly dovish, said the bond-buying program is likely to be scaled back this year, while Atlanta Fed Bank President Dennis Lockhart said tapering could come in October.
Meanwhile, Fed officials have emphasized that tapering does not equate to tightening, and the Fed’s short-term interest rates are likely to remain low until the unemployment rate drops substantially.
Wednesday brings another slew of Fed speakers, who may act to further refine the message. They include Philadelphia Fed President Charles Plosser at 12:30 p.m. Eastern, and Cleveland Fed President Sandra Pianalto at 1:40 p.m.
Despite the tapering uncertainty, many still expect a successful 10-year auction.
“Attractive outright yield level, seasonality factors and potentially the repo bid likely point to strong demand for this auction,” said George Goncalves, head of interest-rate strategy at Nomura Securities, in a note.
U.S. stock futures were lower and the U.S. dollar fell as global markets flirted with a risk-averse a tone that bolstered U.S. government bonds.
Treasurys benefited on Wednesday morning from a selloff in the Nikkei 225 Index JP:NIK -4.00% , which plunged 4% in its worst performance in nearly two months. The Japanese 10-year government bond BX:TMBMKJP-10Y -3.59% yield fell nearly 2 basis points to 0.76% on Wednesday, according to Tradeweb.
The Bank of England adopted forward guidance on Wednesday that links its key lending rate to a drop in the unemployment rate. That sent the FTSE 100 index UK:UKX -0.91% down 0.76% while the 10-year British government bond BX:TMBMKGB-10Y +0.56% , known as a gilt, rose 2.5 basis points to 2.509% on Wednesday, according to Tradeweb.
Ben Eisen is a MarketWatch reporter based in New York.
