Treasuries sink

US Treasuries prices sank on Wednesday as Wall Street stocks rallied for a second straight day and investors took profits on recent gains ahead of a widely anticipated speech from Federal Reserve Chairman Ben Bernanke. Technical indicators showed the bond market was poised for a correction as safe-haven demand due to fears about a US recession and the eurozone debt crisis recently sent benchmark yields to lows not seen in 60 years.
Thirty-year Treasury bonds were on track for their fourth worst day in the past 12 months, on cutbacks by hedge funds and other investors, who also cut back on gold and other safe-haven investments. Treasury volume was 22 percent above its five-day average, with hedge funds accounting for a third of the day's activity, nearly double Tuesday's level, according to Tradeweb.
Traders have been speculating whether Bernanke will use his appearance at the annual central banker conference in Jackson Hole, Wyoming, on Friday to signal a fresh round of monetary stimulus to help a weakening US economy. Most analysts predict if the Fed engages in another round of stimulus, it will extend the overall maturity of its Treasuries holdings using proceeds from maturing securities.
Bonds initially traded lower after July US durable goods orders came in stronger than expected. Losses accelerated and lifted yields to their highest in a week, despite a decent response to a $35 billion auction in five-year Treasury notes, part of this week's $99 billion in coupon-bearing supply. Investors reckoned it was time to lock in some profits due to the recent bond rally, as the moving average convergence divergence indicator showed the rally might be fatigued.
Benchmark 10-year Treasury notes fell 1-7/32 in price to yield 2.30 percent, up 14 basis points on the day and more than 25 basis points above the 60-year low. The 30-year Treasury bond declined 3 points to yield 3.65 percent, up from 3.49 percent late on Tuesday. The Standard & Poor's 500 Index rose 1.3 percent after a 3.4 percent gain on Tuesday.
The sell-off in Treasuries coincided with heavy losses in gold, which hit a record high above $1,900 an ounce on Tuesday on a furious safe-haven bid due to worries over the US economy and Europe's debt woes. Gold was on track for its biggest two-day drop in nearly three years on Wednesday. The US Treasury sold the latest series of five-year notes at a record low yield of 1.029 percent. It will complete this week's coupon debt sales with a $24 billion offering of seven-year notes Thursday.