* Resistance cited at 1.671 percent on 10-year yield
* Economic data points to 'soft patch,' supports bonds
* TIPS auction comes in weak
By Luciana Lopez
NEW YORK, April 18 Prices of Treasuries designed
to protect investors from inflation dived on Thursday as a weak
auction and a spate of disappointing economic data reflected
dwindling fears of inflation.
Yields on the 5-year TIPS, or Treasury Inflation-Protected
Security, hit their highest since late January after investor
interest proved soft in the government's auction of $18 billion
in the notes in the afternoon.
"The rest of the TIPs market is having a mini implosion
since the auction, as real yields on TIPS have jumped 8-10 basis
points across the curve in what appears to be a 'get me out'
trade," TD Securities interest rate strategist Richard Gilhooly
wrote in a research note.
"This is very much a panic trade and with large players
dominating the market, it is not clear that if the pain gets
much worse the liquidity will be there to support the market,"
The five-year yield hit as high as -1.538
percent before more recently trading at -1.547 percent. The high
yield in the auction was -1.311 percent.
The bid-to-cover ratio, which gauges overall auction demand,
came in at 2.18, the lowest since a five-year TIPS auction held
in October 2008. At that auction, the bid-to-cover ratio was
"That was a very rich part of the TIPS curve. It never
cheapened," said Chris McReynolds, head of U.S. Treasury trading
at Barclays in New York.
Between soft economic data and a recent sell-off in
commodities, he said, "it's definitely made people less worried
Investors in U.S.-based funds dedicated to TIPS pulled out a
net $72 million in the week ended April 17, according to data
from Thomson Reuters Lipper service on Thursday.
That was the fifth week of net outflows in the past six
weeks, the data showed.
Prices for nominal Treasuries rose as lukewarm data pointed
to a long slog of a recovery in the world's biggest economy,
fueling bids for safe-haven investments.
The number of Americans filing new claims for unemployment
benefits rose last week and factory activity in the nation's
Mid-Atlantic region cooled in April, further signs of a
moderation in economic growth.
"Over the last month to month and a half, the bond market
has anticipated that we are entering a soft patch, and today's
economic statistics were mostly soft and supported that view,"
said Dan Heckman, senior fixed-income strategist at U.S. Bank
Wealth Management in Minneapolis.
"We're now just on the edge of seeing some of the negative
impact from the sequestration (federal budget cuts) and we'll
see more of that potential impact this month," he said. "We
don't think sequestration creates a huge headwind, but it
nonetheless is a headwind."
The benchmark 10-year Treasury note traded 4/32
higher in price to yield 1.686 percent, just above Wednesday's
intraday low of 1.673 percent, the lowest in over four months.
The 30-year bond rose 12/32 to yield 2.863
percent, compared with 2.88 percent late on Wednesday.
Prices were supported by the Federal Reserve's purchase of
$3.38 billion of Treasuries maturing between May 2020 and
February 2023 as part of its quantitative easing monetary
stimulus program aimed at fostering economic growth and cutting