NEW YORK: US Treasury debt prices slipped on Tuesday, driving benchmark yields to the highest level in over a month as investors pushed for lower prices ahead of two more debt sales later in the week.
The Treasury sold $32 billion of three-year notes earlier in the day at a high yield of 0.37 percent, higher than the 0.366 percent at auction in July.
While the sale probably had a "bearish spin," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut, the market is nonetheless subdued.
"People don't have positions. They can safely sit on their hands," Ader said. "Volumes overall are characteristically moderate."
Investors could be instead setting up for a $24 billion sale of 10-year notes on Wednesday and a $16 billion sale of 30-year bonds on Thursday.
Investors typically will try to undermine Treasuries prices going into such auctions.
Losses were limited, however, with safe-haven interest underpinning Treasuries due to worries over Europe's ability to rein in its debt crisis and concerns Spain might require a sovereign financial bailout.
European Central Bank President Mario Draghi has outlined a plan to buy sovereign debt in cooperation with the euro zone bailout funds, but not before September and only if countries ask to use the funds and accept strict supervision.
That conditional pledge suggests the situation in Spain may have to deteriorate and borrowing costs rise further before the country seeks aid, opening the door to ECB intervention, according to some analysts.
Underlying demand for safe-haven bonds is therefore likely to persist and could fuel appetite for the US government debt supply this week.
Benchmark 10-year notes were trading 19/32 lower in price to yield 1.630 percent, hitting earlier in the day the highest level since July 2 and up from 1.56 percent late Monday.
"If you get some stability here around the 1.63-1.65 level that should bring in some more buying," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee. "But that's a big if."
The move lower in price had yields nearing some important technical levels, said MacNeil Curry, chief rates and currency technical strategist at Bank of America Merrill Lynch in New York.
Key support levels are under pressure or giving way across much of the Treasury curve, Curry said, adding that the 1.67 percent level was key for the 10-year note.
"This level is critical as it defines the medium-term bull trend. Indeed, a sustained break through would indicate an end to the four-month bull trend opening the 200-day (moving average) at 1.88 percent and potentially beyond," he said.
"To be clear, this has not happened yet, and we are still bullish for 1.24 percent ahead of 1.00 percent, but a break of 1.67 percent would force us to abandon this view."
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