Treasuries trimmed by profit-taking before auction
Thu Feb 10, 2005 09:22 AM ET
By Wayne Cole
NEW YORK, Feb 10 (Reuters) - Treasury debt prices retreated on Thursday as investors booked profits on recent stellar gains in long-term debt ahead of a $14 billion auction of 10-year paper.
Adding to the pressure was U.S. government data which showed signs of improvement in the long lackluster labor market as well as a pullback in the nation's trade deficit.
"The data is likely to prove most negative for the back-end where a mix of strategic shorts and curve flattening unwinds have created turbulent trading conditions, notably in the 30-year sector," said Alan Ruskin, research director at 4CAST.
The 30-year bond (US30YT=RR: Quote, Profile, Research) has been on a tear in recent weeks, with yields plunging over 50 basis points to hit a 1-1/2 year trough. The move generated tasty profits for those betting on a flatter yield curve and some of that was being booked today.
The result was a 28/32 drop in 30-year bond prices, lifting yields to 4.42 percent from 4.37 percent late on Wednesday. The benchmark 10-year note (US10YT=RR: Quote, Profile, Research) slipped 8/32, taking yields to 4.02 percent from 3.99 percent.
Yields on the two-year note (US2YT=RR: Quote, Profile, Research) rose to 3.26 percent from 3.25 percent. The new five-year note (US5YT=RR: Quote, Profile, Research) was yielding 3.61 percent, almost exactly what they fetched in Wednesday's well-received $15 billion auction.
The morning's economic data provided a further excuse to sell bonds.
Initial jobless claims fell to 303,000 last week when analysts had looked for a rise to 325,000. That was the lowest reading in four years and suggested the next payrolls report could prove more robust than the disappointing January reading.
The December trade deficit narrowed to $56.4 billion against forecasts of $57 billion, while November's shortfall was revised to a smaller $59.33 billion.
That in turn suggested some risk of an upward revision to fourth quarter economic growth, though analysts noted that the inflation adjusted deficit had not narrowed nearly as much and it was this figure that mattered for GDP calculations.
Of more immediate importance to bond traders was the $14 billion auction of 10-year paper, bids for which close at 1:00 p.m. (1800 GMT).
At the last refunding in November the 10-year sale drew bids for 2.68 times the amount on offer, easily beating the long-run average of 2.14.
Indirect bidders, the class that includes foreign investors and central banks among others, took 40.5 percent of the auction. The average of refundings for all of last year was 46 percent, excluding reopenings which tend to to attract far less indirect interest.
There had been hopes this latest sale would attract plenty of demand given a global desire for duration by pension funds and the like. However, with two legs of the refunding going well, traders were wondering if this would be a case of third time unlucky.
"We are dubious about the success of three's and five's carrying over to 10s. We like the idea that after two successful auctions, the third one tends to suffer," said David Ader, U.S. government bond strategist at RBS Greenwich Capital.
"The two-five year sector is where the underperformance has been and the short base the biggest. The short base was not as deep in 10s, and with yields flirting with 4 percent you won't find people saying they're a bargain," he added.
o gli tirano una bella spallata o non si scende... - i bandidos devono piazzare la loro carta quindi tengono su tutto...sospetto...
