TREASURIES-U.S. prices slide after three-year note auction

Tue May 7, 2013 2:30pm EDT

Related Topics

* Yields at three-week highs before supply
    * Treasury sells $32 bln in 3-year notes at high yield of
0.354 pct
    * Treasury sells $20 bln in 4-week bills at zero yields
    * Fed buys $1.46 bln in bonds due 2036-2043

    By Karen Brettell and Luciana Lopez
    NEW YORK, May 7 (Reuters) - Prices for U.S. Treasuries slid
for a third session on Tuesday after a three-year note sale
brought few surprises, with the outlook for an economic recovery
offset by the sluggish pace of U.S. growth and government
stimulus plans around the world.
    The Treasury sold $32 billion in three-year notes at a high
yield of 0.354 percent, right around what the market expected.
 
    Yields remained higher after the auction, extending gains
since data last Friday showing better-than-expected job
additions boosted hopes for the world's biggest economy.
    "Despite the backup (in rates) there's not a real rush to be
a buyer down here," said Kim Rupert, managing director of global
fixed income analysis at Action Economics LLC in San Francisco.
    "With Q2 not looking like a real pickup in growth either and
with so much stimulus globally, it's hard to hammer this market
lower," she said. The result is a rangebound market, with
investors feeling little urgency to take a position, she said.
    Nevertheless, many investors believe yields are unlikely to
march significantly higher, barring new signs that the economic
recovery shows greater resilience than expected.
    "One decent number is not strong enough to completely change
the mood of market players," said Jason Rogan, managing director
of Treasuries trading at Guggenheim Partners in New York. 
    Benchmark 10-year note yields rose to 1.783
percent and touched a three-week high on Tuesday, up from 1.76
percent on Monday. 
    Rogan sees levels of 1.80 percent to 1.82 percent as likely
to attract new buying from fund managers or central banks.
    Thirty-year bond yields inched up to touch the 
key 3 percent level, up from 2.98 percent on Monday and also the
highest since April 12.
    The higher yields may help demand for this week's new
supply, with the Treasury also due to sell $24 billion in
10-year notes on Wednesday and $16 billion in 30-year bonds on
Thursday.
    "The market has backed up nicely, and I believe that you're
going to see pretty good sponsorship for some of this long-end
paper," said Sean Murphy, a Treasuries trader at Societe
Generale in New York. 
    The Treasury also sold $20 billion in four-week Treasury
bills to strong demand on Tuesday; it was the lowest amount for
that auction since one held in 2001.
    The bills sold at zero yields, the first time they have
offered no return since January 2012. 
    Returns on the bills have plunged as the Treasury slashes
its supply of short-term debt as it accumulates more cash from
tax receipts, and as the government prepares for a new round of
wrangling over the U.S. debt ceiling later this month.
    Returns on one-month bills dropped to only half a
basis point in secondary trading on Tuesday, down from 3 basis
points last week and from over 10 basis points in late February.
    The Federal Reserve bought $1.46 billion in bonds due from
2036 to 2043 on Tuesday as part of its ongoing bond purchase
program. It will purchase between $3.00 billion and $3.75
billion in notes due 2019 and 2020 on Wednesday.
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