Reuters logo
TREASURIES-Prices edge higher after recent losses
October 13, 2011 / 6:40 PM / in 6 years

TREASURIES-Prices edge higher after recent losses

* Strong demand at auction of $13 bln in 30-year bonds

* Europe remains in focus, better U.S. data shrugged of

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 13 (Reuters) - U.S. Treasury debt prices rose on Thursday, with 30-year bonds snapping six days of losses, as a rally in stocks lost momentum after soft earnings from J.P. Morgan and concerns about Europe’s plan to recapitalize its banks.

An auction of U.S. 30-year bonds attracted strong interest, with a record low yield of 3.120 percent compared with market forecasts of 3.157 percent. That propelled 30-year bond prices even higher and pushed yields to session lows.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount offered, was 2.94 times, above the 12-month average.

Many had expected robust demand at the auction anyway given how much 30-year bonds have cheapened in recent sessions. And for some, the Federal Reserve’s buying of long bonds suggested that these securities offered good value.

Overall, most analysts have pinned Thursday’s gains in the Treasury market on the slide in stocks and any caution that has resurfaced could be short-lived.

“What we’re seeing is a classic bond market response to modest equity market weakness,” said Jonathan Lewis, chief investment officer, at Samson Capital Advisors in New York, with assets under management of $7.7 billion.

“This is a stocks down, bonds up trade, with no material economic catalyst other than we had several days of stocks run-up and bonds sell-off.”

Headlines in Europe, however, continued to attract attention, with the latest one suggesting euro zone banks would be given about six months to strengthen their capital under what could be hefty recapitalization schemes.

On balance, though, most investors still believe the European crisis is under control and measures are being taken to avert another credit crunch.

Volume in the Treasury market was $178.486 billion after 12 pm Eastern time, about 15 percent higher than the 20-day moving average for that time of $155.535 billion, ICAP said.

The Treasury market, meanwhile, shrugged off a weekly jobless claims report that many saw as a faintly positive sign for the economy, which would normally spur selling in Treasuries.

New U.S. claims for unemployment benefits edged down last week, according to a government report on Thursday that pointed to a modest improvement in the labor market at the start of the fourth quarter.

In early afternoon trading, the 30-year bond rose 1-15/32 higher in price, yielding 3.12 percent, down seven basis points from 3.19 percent at Wednesday’s close.

Market attention has now shifted to nearby resistance at 3.20 percent, analysts said, corresponding to a series of lows in price that formed between September 6-16.

RBC Capital Market’s chief technical strategist George Davis said a daily close above 3.20 would sustain the corrective forces at hand, exposing the 38.2 percent Fibonacci retracement of the July-October decline in yields at 3.35.

However, the Federal Reserve’s latest program to lower long-term interest rates, which the market has dubbed Operation Twist, could provide some support for 30-year bond prices.

The Fed has pledged to purchase a hefty portion of 30-year bonds over the coming months, reducing supply in the Treasury market. This could increase the bonds’ appeal at auction.

The benchmark 10-year Treasury note , meanwhile, was up 15/32 in price and was last yielding 2.15 percent, down 6 basis points from Wednesday.

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below