* Yellen testimony in focus, Fed chair seen sticking to
* Traders looking to auctions this week, demand seen steady
By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 10 U.S. Treasury debt prices were
little changed to slightly lower on Monday in thin trading,
after a rally the previous session on a weaker-than-expected
U.S. non-farm payrolls report, with investors bracing for this
week's heavy supply on the long end.
Markets are also awaiting the first testimony of Federal
Reserve Chair Janet Yellen, who testifies in Congress on Tuesday
and Thursday after a second month of weaker-than-expected U.S.
"There's really not much impetus today. Everybody is
waiting for Yellen's testimony tomorrow," said Kim Rupert,
fixed-income manager at Action Economics in San Francisco. "It's
kind of a position-squaring day from recent price moves."
Despite poor U.S. jobs data, Yellen is expected to give a
balanced assessment of the world's largest economy which should
suggest the reduction in the Fed's asset purchases remains on
"There were hopes built up on Friday that the Fed will come
to the rescue given the state of the recent weak economic data,
but the market will more likely be disappointed," said Guy
LeBas, chief fixed income strategist, at Janney Montgomery Scott
Benchmark 10-year Treasuries were last down 2/32
in price to yield 2.68 percent, little changed from Friday,
while 30-year bonds slipped 2/32 to yield 3.66
percent, also little changed from the previous session.
There was nothing on the U.S. data calendar on Monday except
for the large T-bill auctions, including $84 bln in three- and
six-month bills, and $50 bln of l72-day cash management bills.
The Treasury sold record amounts of three-month and
six-month debt at the highest interest rates on the maturities
since October. Worries about the U.S. government's inability to
increase its $16.7 trillion borrowing limit by late February
triggered the record supply.
The Treasury said it would pay dealers and investors 0.095
percent on $42 billion of its three-month debt due on May 15.
And for the $42 billion six-month T-bills maturing on Aug. 14,
the government would pay 0.11 percent.
The amount of three-month bills sold surpassed the prior
record of $35 billion, while the amount of six-month debt sold
eclipsed the previous record of $31 billion.
The Treasury, meanwhile, will sell $70 billion in new
coupon-bearing debt this week, including $30 billion in
three-year notes, $24 billion in 10-year notes, and $16 billion
in 30-year bonds.
Analysts said domestic demand has improved on the three-year
sector, with strong performances in previous auctions and
reversing weak showings in the first half of last year.
"The reversal in the weak performance has been driven by an
improvement in domestic fund demand," wrote Barclays Capital in
a research note. "On a three-month moving average basis, their
participation has increased to 25 percent, the highest in a
On the 10-year note, direct bidder participation has
declined and performance has weakened recently, even as demand
has remained steady. Thirty-year maturities, on the other hand,
have seen a recent decline in demand, particularly from foreign
investors, but that is from a high base.
"The 10s and 30s (auction) should go okay despite weakening
demand overall," said Action Economics' Rupert.
Even though the unemployment rate has improved and moved
closer to the Federal Reserve's 6.5 percent threshold, inflation
remained way off its two percent target, which should still
encourage buyers for both maturities.
The Treasury also announced on Monday it will borrow just $8
billion this week in bills that must be repaid in one month.
That's the same amount of one-month debt taken on last week,
which was the lowest level in almost six years.
In late trading, five-year notes were down 2/32
in price to yield 1.47 percent, while seven-year notes
were 1/32 lower with a yield of 2.12 percent.