NEW YORK: Benchmark US Treasury yields edged up to 2 percent on Wednesday before a $35 billion sale of five-year notes, as less pessimistic US data and hopes for bold steps to combat Europe's debt crisis kept a lid on demand for bonds.
The current market sell-off slowed, as investors await fresh news on whether Greece will receive another round of aid to stave off a default and European leaders can agree on an enlarged bailout fund to help Greece and other debt-laden nations in the region.
"Right now the good news from Europe has been priced in. The market now realizes that the only risk is that this might fall part. That's why you have have seen a slowdown in the sell-off in Treasuries," said Chuck Retzky, director of futures sales at Mizuho Securities USA in Chicago.
Expectations that some fund managers might rotate cash into bonds from stocks before quarter-end also curbed market losses, traders and analysts said.
Treasury yields returned to levels that existed prior to the Fed's announcement of "Operation Twist", a plan which involves selling short-dated bonds it owns and using the money to buy long-dated debt.
These higher yields enticed Asian foreign buyers including central banks in overseas trading, but the purchases later faded in reaction to stronger-than-expected data on business spending, suggesting the US economy is not slowing as much as some had feared, traders said.
The US Commerce Department said overall durable goods orders slipped 0.1 percent in August, slightly weaker than what economists had forecast.
But last month's demand for non-defense capital orders excluding aircrafts, which economists consider a proxy of business spending, jumped 1.1 percent, above the 0.3 percent increase predicted by economists.
The somewhat encouraging data spurred selling in bonds and pushed the 10-year note yield back up to 2.00 percent. The 10-year yield fell to a 60-year low of 1.67 percent on Friday.
The 30-year Treasury bond fell 8/32 in price for a yield of 3.08 percent, up 1 basis point from Tuesday. The 30-year yield hit 2.74 percent on Friday, the lowest since January 2009.
Despite the market sell-off, traders anticipate solid demand at the $35 billion five-year note auction at 1 p.m. (1700 GMT).
In the "when-issued" market, traders expect these notes due Sept 2016 to sell at a yield of 0.985 percent as of early Wednesday, below the record low yield of 1.029 percent set at the five-year auction in August.
Copyright Reuters, 2011
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