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Reuters
Treasuries Lower for Auction, Trade Thin
Wednesday May 12, 9:42 am ET
By Wayne Cole
NEW YORK (Reuters) - U.S. Treasury prices drifted lower on Wednesday as the market braced for the second leg of the U.S. government's $54 billion debt offering this week.
Trade figures showed the U.S. deficit widening to a new record in March, which will likely force optimists to rein back their forecasts for a big upward revision to first-quarter Gross Domestic Product growth.
That was old news, however, and traders were more concerned with cheapening prices for the auction. Some $15 billion of five-year notes go under the hammer and hopes are high for a good turnout after $24 billion of three-year notes drew strong demand from indirect bidders on Tuesday.
Such bidders include private retail and foreign investors but have come to be seen by the market as a barometer of offshore central bank appetite for Treasuries.
The last five-year sale attracted bids for 2.28 times the amount on offer while indirect bidders took a sizable 41 percent of the issue. A similar result this time would be considered reasonable given the market is stuck in a vicious bear trend right now.
"The feeling is it's going to go well, particularly as the five's have cheapened significantly compared to the rest of the curve," said one trader at a U.S. primary dealer.
Five-year yields have climbed 130 basis points from their low point in March, narrowing the spread with 10-year yields by around 30 basis points to 0.85 percent.
Early Wednesday, the current five-year note (US5YT=RR) was holding at 3.91 percent. Yields on the two-year note (US2YT=RR)were steady at 2.57 percent for a second session, though that comes after a 25 basis-point jump on Friday.
The benchmark 10-year note (US10YT=RR) dipped 4/32 in price, nudging its yield up to 4.77 percent from 4.75 percent and not far from Monday's two-year closing peak of 4.80 percent.
The 30-year bond (US30YT=RR) fell 5/32, leaving its yield at 5.47 percent from 5.46 percent on Tuesday.
The trader noted that while the Japanese Ministry of Finance had clearly stopped intervening to buy dollars recently, it still had plenty to invest. Data from the MOF out overnight showed it had cash balances of $171 billion as part of total reserves of $815 billion.
"But often with these refundings, one leg will disappoint and for no obvious reason," added the trader. "In any case, this is all secondary to the inflation figures; if they're high the market's in the toilet no matter what."
Producer price data are due on Thursday and the consumer price index on Friday.
Figures on import prices released early on Wednesday were a relief in that they only rose a modest 0.2 percent having jumped 0.9 percent in April.
But worries remain that the core CPI will surprise on the upside in April after March's hefty 0.4 percent gain. Another rise on that scale could spark speculation the Fed will have to be more aggressive in tightening and hike rates by 50 basis points in June.
Speaking on CNBC early Wednesday, Chicago Fed President Michael Moskow acknowledged that the pace of tightening depended on inflation and jobs, though as things stood right now the central bank could be measured in its hikes.
Treasuries Lower for Auction, Trade Thin
Wednesday May 12, 9:42 am ET
By Wayne Cole
NEW YORK (Reuters) - U.S. Treasury prices drifted lower on Wednesday as the market braced for the second leg of the U.S. government's $54 billion debt offering this week.
Trade figures showed the U.S. deficit widening to a new record in March, which will likely force optimists to rein back their forecasts for a big upward revision to first-quarter Gross Domestic Product growth.
That was old news, however, and traders were more concerned with cheapening prices for the auction. Some $15 billion of five-year notes go under the hammer and hopes are high for a good turnout after $24 billion of three-year notes drew strong demand from indirect bidders on Tuesday.
Such bidders include private retail and foreign investors but have come to be seen by the market as a barometer of offshore central bank appetite for Treasuries.
The last five-year sale attracted bids for 2.28 times the amount on offer while indirect bidders took a sizable 41 percent of the issue. A similar result this time would be considered reasonable given the market is stuck in a vicious bear trend right now.
"The feeling is it's going to go well, particularly as the five's have cheapened significantly compared to the rest of the curve," said one trader at a U.S. primary dealer.
Five-year yields have climbed 130 basis points from their low point in March, narrowing the spread with 10-year yields by around 30 basis points to 0.85 percent.
Early Wednesday, the current five-year note (US5YT=RR) was holding at 3.91 percent. Yields on the two-year note (US2YT=RR)were steady at 2.57 percent for a second session, though that comes after a 25 basis-point jump on Friday.
The benchmark 10-year note (US10YT=RR) dipped 4/32 in price, nudging its yield up to 4.77 percent from 4.75 percent and not far from Monday's two-year closing peak of 4.80 percent.
The 30-year bond (US30YT=RR) fell 5/32, leaving its yield at 5.47 percent from 5.46 percent on Tuesday.
The trader noted that while the Japanese Ministry of Finance had clearly stopped intervening to buy dollars recently, it still had plenty to invest. Data from the MOF out overnight showed it had cash balances of $171 billion as part of total reserves of $815 billion.
"But often with these refundings, one leg will disappoint and for no obvious reason," added the trader. "In any case, this is all secondary to the inflation figures; if they're high the market's in the toilet no matter what."
Producer price data are due on Thursday and the consumer price index on Friday.
Figures on import prices released early on Wednesday were a relief in that they only rose a modest 0.2 percent having jumped 0.9 percent in April.
But worries remain that the core CPI will surprise on the upside in April after March's hefty 0.4 percent gain. Another rise on that scale could spark speculation the Fed will have to be more aggressive in tightening and hike rates by 50 basis points in June.
Speaking on CNBC early Wednesday, Chicago Fed President Michael Moskow acknowledged that the pace of tightening depended on inflation and jobs, though as things stood right now the central bank could be measured in its hikes.
