US Treasuries prices rose on Thursday as intense bidding at a $29 billion seven-year debt auction spurred buying in the broader bond market, pushing benchmark yields below 2 percent. Treasuries reversed earlier losses following the debt sale, the last part of this week's $99 billion in coupon supply. The seven-year auction drew the highest demand from investors and direct bidders since the maturity was reintroduced three years ago.
"When you had such good demand, people sat up and took notice," said Brian Rehling, chief fixed-income strategist at Wells Fargo Advisors in St. Louis, Missouri. The unexpectedly strong bids at the auction forced some traders to buy Treasuries in the open market. "If people were bidding in the auction to cover and they missed, then they are short and have to enter the market to buy at a higher price than what they missed in the auction," said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson & Co in Seattle.
The market turnaround kept bonds squarely within the narrow trading ranges established since the start of the year. Benchmark 10-year Treasury notes last traded up 5/32 in price for a yield of 1.98 percent, down almost 2 basis points from late Wednesday. They were down 13/32 earlier with a yield of about 2.05 percent.
The 30-year bond was up 11/32 after falling as much as 25/32 earlier. The 30-year yield was last 3.13 percent after trading between 3.11 percent and 3.19 percent. Treasuries prices had mostly traded lower through much of the morning as traders made room for the supply, although concern that Greece will struggle to meet the demands of its new bailout package - and avert a disorderly default that could roil global debt markets - was seen likely to keep debt yields in a tight range.
The Greek parliament on Thursday endorsed a bond swap for private holders of its debt. The swap, in which investors trade bonds for lower-value debt, is to be launched on Friday with the aim of slicing 100 billion euros off liabilities worth 160 percent of national output. "Things are not settled yet in Europe," said Andrew Richman, fixed income strategist at SunTrust Private Wealth Management in Palm Beach, Florida, which oversees about $13 billion in bonds.
Investors are also wary about the political unrest in Iraq and Syria and fear escalation of tension in the region could lead to an oil shortage, disrupting the global economy. "Treasuries are a hedge against the Middle East," Richman said. In New York, NYMEX crude futures settled up $1.55 or 1.46 percent at $107.83 a barrel.
The geopolitical uncertainties, together the Federal Reserve's "Operation Twist" program that is designed to push down long-term interest rates, should feed safe-haven bids for Treasuries and keep benchmark yields close to 2 percent in the near future, analysts said.
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