* Foreign central bank auction participation declines
* Investors look to 30-year bonds with caution
(Adds comment, updates prices, adds 10-year-note auction
By Gertrude Chavez-Dreyfuss
NEW YORK, June 11 U.S. Treasury debt prices were
flat to slightly lower on Wednesday in thin trading, after a
lackluster 10-year auction that raised concerns about weakening
demand for long-term government paper.
Treasuries sold off in the aftermath of the auction, which
saw a higher-than-expected yield, suggesting investors are
demanding a premium to hold U.S. debt. Foreign central bank
participation declined again, continuing a trend seen since
The high yield for the U.S. 10-year note was 2.648 percent
versus 2.64 percent at the bid deadline. Bids totaled $60.5
billion for a decent 2.88 bid-to-cover, versus 2.63 in April and
an average of 2.65.
Indirect bidders, which include foreign central banks, took
just 36.1 percent of the 10-year note, compared to last month's
49.3 percent, and a 45.2 percent average.
"The auction was a little disappointing. We tailed out a bit
and the indirect bidding was on the lower side," said Kim
Rupert, managing director at Action Economics in San Francisco.
In afternoon trading, 10-year notes were down
1/32 in price to yield 2.642 percent, from 2.648 percent late on
Tuesday. Earlier in the global session, 10-year yields hit a
one-month high of 2.662 percent.
Rupert thinks demand for Treasuries has faded for now,
noting that the expected demand for U.S. debt in the aftermath
of the European Central Bank's easing measures has yet to
Market participants have speculated that global investors
would buy more Treasuries because they are undervalued relative
to German Bunds, which had a tremendous run in anticipation of
the ECB action.
"That whole notion of the arbitrage between Bunds and
Treasuries are overblown," Rupert said.
U.S. 30-year bonds were flat with a yield of 3.466 percent
, from 3.481 percent late Tuesday.
Prior to the auction, some market participants fretted about
the lack of demand for U.S. government paper.
"We had auctions that tailed for the fist time -- the 2s,
5s, and 7s all tailed two weeks ago. People are somewhat guarded
that we may see a continuation of that trend of just a general
lack of demand," said Tom di Galoma, head of fixed-income rates
at ED&F Man in New York.
The market has now seen higher-than-expected rates in four
of the last five re-openings in the 10-year sector and the
smallest indirect award since May, wrote CRT in a research note.
On Thursday, the U.S. Treasury will sell the last tranche of
its debt, with the auction of $13 billion in 30-year bonds.
The 30-year bond has seen recent weak demand. Of the
previous five auctions, two have fetched a higher-than-expected
(Editing by Leslie Adler)