TREASURIES-Prices ease as 30-year auction mediocre

Thu Dec 13, 2012 4:19pm EST

Related Topics

* Treasury auctions $13 billion of 30-year bonds
    * U.S. weekly jobless claims lower than expected
    * Investors mull impact of new Fed stimulus

    By Chris Reese and Luciana Lopez
    NEW YORK, Dec 13 (Reuters) - U.S. debt prices slid on
Thursday after an auction of 30-year bonds saw cautious bidding
in the wake of U.S. Federal Reserve monetary policy easing the
previous day, with better-than-expected jobs data also eroding
Treasuries' safe haven appeal.
    The Treasury sold $13 billion of 30-year bonds at a high
yield of 2.917 percent, and yields rose in the open market for
Treasuries for a third straight session.
    "It would be safe to characterize it as a mixed result,"
said Ian Lyngen, senior government bond strategist at CRT
Capital Group in Stamford, Connecticut. "The street didn't want
to participate."
    U.S. 30-year bond prices rose to session highs
shortly before the auction, making it harder for dealers to
position themselves to buy the new debt cheaper at the auction. 
    This run-up in prices reduced the bidding for the new
30-year issue at the time of the auction, causing the yield to
"tail" or sell at a higher-than-expected level. 
    But 30-year debt gave up those early gains to turn negative
after the sale concluded, off 8/32 to yield 2.908 percent.
    "It's just unfortunately not as stellar an auction" as other
recent sales, said William O'Donnell, head of U.S. Treasury
strategy at RBS Securities in Stamford, Connecticut.
    "The tail indicates that where people wanted to buy was
close to the cheapest levels yesterday, not where we were," he
added.   
    Prices were also undermined by data showing claims for U.S.
unemployment benefits were lower than expected in the latest
week, eating away at appetite for Treasuries as a safe haven.
 
    Investors were still digesting a new round of monetary
stimulus announced by the Fed on Wednesday, with the bank
shifting more of its purchases to the five-year sector.
 
    The Fed committed to monthly purchases of $45 billion in
Treasuries on top of the $40 billion per month in
mortgage-backed bonds it started buying in September.  
    It will expand purchases to five-year notes from the current
seven-, 10- and 30-year Treasuries.     
    Thirty-year bonds particularly underperformed in the wake of
the announcement, which also boosted hopes that the economy
could strengthen and further bite into the attraction of
safe-haven investments.   
    The benchmark 10-year Treasury note traded down
9/32 to yield 1.733 percent, marking the highest yield in more
than a month and up from a high yield of 1.65 percent in an
auction of $21 billion of the notes on Wednesday.
     Analysts said the drop in Treasuries was limited by
concerns over whether U.S. lawmakers will agree on a deal to
avoid a $600 billion mix of spending reductions and expiring tax
cuts set to begin in 2013.
    Such worries were underscored on Wednesday by Fed Chairman
Ben Bernanke, who warned that running over this "fiscal cliff"
would lead to a new recession. He told reporters the Fed could
ramp up its bond buying "a bit" but emphasized that monetary
policy has limits and could not fully offset the impact.
    The Treasury sold $32 billion of three-year notes on Tuesday
and $21 billion of 10-year notes on Wednesday. Next week it will
sell two-year, five-year and seven-year notes as well as
five-year Treasury inflation-protected securities.
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