US bonds tumble

A long-awaited plan to contain Europe's debt crisis caused investors to spurn safe-haven US government debt on Thursday, pushing bond prices down and benchmark yields to their highest in 2-1/2 months. Investors' decision to eschew US debt in favour of riskier assets fed a rally on Wall Street where all three major US stock indexes rose more than 3.5 percent.
Analysts said the "fear trade" that had made investors ready to hold Treasuries despite low yields moderated on news that eurozone leaders had struck a deal to contain the currency bloc's two-year-old debt crisis. "If Treasuries are the 'fire insurance' in an investment portfolio, people have started to scale back on how much insurance they think they really need," said Jerry Webman, chief economist at OppenheimerFunds in New York, which has $188 billion in assets under management. "Investors have decided they're not going to own Treasuries at any price,"
The consequent selling pushed benchmark 10-year Treasury notes down 1-16/32 in price, sending their yields up to 2.40 percent from 2.21 percent late on Wednesday. Thirty-year Treasury bonds tumbled 4-12/32, shoving their yields up to 3.44 percent from 3.23 percent on Wednesday. The jump in yields was the sharpest in 2-1/2 months. More evidence that the US economy was growing, albeit slowly, also weakened demand for safe-haven US debt.
The US economy grew at its fastest pace in a year in the third quarter, the government said on Thursday. "The US continues to have slow growth; unless there is some significant policy mistake, we will not see a recession next year," Webman said. The pullback in demand for US Treasuries hurt bidding for the Treasury's $29 billion auction of 7-year notes as well.
The seven-year auction was "poorly bid," stopping 3 basis points above the 1 pm when-issued bid, said Thomas Simons, money market economist at Jefferies & Co in New York. The ratio of bids received over those accepted was 2.59, the lowest in more than two years. The market sell-off pushed the two-year note yield above its 100-day moving average and the 30-year bond yield to its highest since mid-September.