NEW YORK: US Treasuries yields rose to their highest in more than two weeks on Thursday on hopes Congress will reach a deal to raise the debt ceiling, reducing demand for safe-haven Treasuries, and before the Treasury sells $13 billion in new 30-year debt.
Republicans in the US House of Representatives are weighing a short-term debt limit with no added policy changes, according to a person with knowledge of the discussions.
"There is an overall feeling that a deal is imminent," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.
Set up for Thursday's auction may have also weighed on the market. The Treasury's 30-year sale is its final auction of $64 billion in new coupon-bearing debt this week.
Selling accelerated in overnight trading after Treasuries yields broke above their recent support levels.
Benchmark 10-year notes were last down 12/32 in price to yield 2.71 percent, the highest since September 23, and above a recent technical support level of around 2.68 percent.
"After breaking above that level some sell stops were hit, which kept the market falling overnight," said John Canavan, fixed income analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.
Thirty-year bonds dropped 21/32 in price to yield 3.78 percent, the highest since September 20.
Treasuries had largely traded sideways for the past two weeks, with many investors hesitant to enter new trades due to political gridlock in Washington. The US government entered its tenth day of partial shutdown on Thursday and fears have been rising that political dysfunction could disrupt an increase in the debt ceiling.
Parts of the Treasury bill market remained under pressure on Thursday, with fears over skipped payments moving out to some bills maturing later in November and in December, on reports that a debt ceiling increase may bring relief for only around four-to-six weeks.
The current on-the-run one-month Treasury bill yields , which mature on November 7, traded at 0.17 percent on Thursday, down from a five-year high of 0.36 percent on Tuesday.
Yields on bills that mature on Nov 29, however, spiked as high as 0.17 percent on Thursday, up from 0.05 percent late on Wednesday, before falling back to around 0.10 percent.
"It's simply moving some of the concerns further out the bill curve, they're not necessarily eliminating market fears, but shifting where those fears are highlighted," said Canavan.
The cost to finance overnight trades backed by Treasuries in the repurchase agreement market also shot higher on Thursday, opening at around 27 basis points before falling back to around 10 basis points, said traders.
Banks and money funds have begun to stipulate that they won't accept Treasuries at risk of delayed payments to back repo loans.
The Federal Reserve bought $1.38 billion in Treasury Inflation-Protected Securities (TIPS) due from 2028 to 2043 on Thursday as part of its ongoing purchase program.
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