LONDON Feb 14 U.S. 10-year Treasury note yields
rose to a 10-month high on Thursday before an auction of 30-year
bonds after tepid demand at a 10-year note sale the previous day
triggered concern about a fund shift into riskier assets.
Treasuries underperformed German Bunds, with their 10-year
yield spread widening by three basis points to 39 bps, the
widest since early January with Bunds boosted by data showing
the euro zone slipped deeper than expected into recession in the
last quarter of 2012.
On Wednesday, the Treasury sold $24 billion in 10-year notes
at a high yield of 2.046 percent, above what the market had
The yield on the new notes rose as high as 2.063 percent
in European trade, the highest for the current
10-year notes since April last year, rising above the Feb. 4
high of 2.0590 percent. It was last at 2.05 percent, up 1.8
basis points from late New York levels.
"Even though retail sales came in softer it didn't
necessarily help which tells me the market is pushing for higher
yields and the driver remains supply," a trader said.
"We still have to take down $16 billion of 30-year duration
that's going to have a big impact."
Treasury yields could make a clear break above their recent
trading ranges if the sale of 30-year bonds later in the day
also fails to attract strong demand. The 30-year yield stood at
3.243 percent, near a 10-month high of 3.254 percent
hit last week.
"The (10-year) auction came close to the 2.06-ish level and
the market is now looking to target close to the 2.09 (percent)
level and it's more a question of how quickly we get there," the
The rise in yields came even after data showed on Wednesday
U.S. retail sales barely rose in January as tax increases and
higher gasoline prices restrained spending.
Many investors expect global growth to gain momentum this
year as the euro zone shows some sign of stability while the
Chinese economy rebounds, reducing the attraction of bonds.
Investors are now focused on a package of automatic spending
cuts, which are due to kick in on March 1 unless lawmakers agree
on alternative budget measures or delay negotiations to a later
While concerns about spending cuts could prop up Treasuries
for now, some traders are of the view the market may have
already priced in these cuts to some degree.
Senate Republican leader Mitch McConnell said on Tuesday he
expects across-the-board cuts, known as a sequester, to begin on
"It is clear now that the U.S. sequester will start biting
ever harder over the coming weeks and maybe months. A modest
initial hit is probably already priced," Societe Generale
strategists said in a note.