Treasuries rise

The prices of US Treasuries rose on Wednesday as corporate deal pricing fuelled buying, while President Barack Obama and Chinese President Hu Jintao avoided a public clash on currency differences that might have rattled the bond market. A $5 billion deal pricing for five-year notes issued by the World Bank prompted underwriters to buy Treasury securities in a move to unwind a hedging trade known as rate-locking, which involves selling Treasuries.
The US central bank bought $7.7 billion in Treasuries due July 2013 to December 2014. The amount of bonds that dealers submitted for the Fed to buy at $39.06 billion is the biggest since QE2 began, analysts said. Prices got another slight boost later in the trading day from the conclusion of a joint press conference the US and Chinese presidents held.
The Treasury market is sensitive to statements on currency issues from Chinese officials since China is a major buyer of US Treasuries as part of its currency reserve management. In the past, negative comments on Treasuries from the Chinese have prompted selling. The bond market has been stuck in a tight range since the start of 2011. This signals that current yield levels match investors' outlook for the Federal Reserve to cling to a super easy monetary policy into 2012 and the US economy to grow at a modest pace without stirring inflation, analysts said.
The yield on benchmark 10-year Treasuries was last at 3.34 percent, down from 3.37 percent late on Tuesday, while the yield on 30-year bonds slipped to 4.53 percent from 4.57 percent Tuesday. The spread between two-year and 30-year Treasuries, which is considered a gauge of long-term growth and inflation expectations, shrank to 3.94 percentage points on Wednesday.
A day after touching a record wide of 4.00 points. Inflation issues will factor largely into the Treasury Department's sale on Thursday of $13 billion in 10-year Treasury Inflation-Protected Securities, the largest offering ever. In the "when-issued" market, traders expect the Treasury will sell the upcoming 10-year issue due January 2011 at a yield of 1.046 percent. That was above a yield of 0.939 percent on the 10-year trading in the open market midday Wednesday.