Yields fall as market gobbles up three-year notes

CHICAGO: US Treasury yields retrenched a little on Monday from last week's dramatic rise, while an auction of three-year notes was met with solid demand.

The benchmark 10-year yield was last down 2.6 basis points at 0.8785%. Yields spiked on Friday in the wake of a better-than-expected May employment report with the 10-year note yield rising above 0.9% for the first time since March 20.

"Today in particular, the story is about the market finding its footing after last week's job numbers," said Ben Jeffery, a strategist at BMO Capital Markets in New York.

Meanwhile, the Treasury, which is financing massive stimulus spending to combat the economic fallout from the coronavirus outbreak, sold $44 billion of three-year notes with a bid-to-cover ratio of 2.55 times, which was higher than average, according to analysts.

"No matter how you slice it, it was a good auction today, which is noteworthy in the context of just how low yields are," Jeffery said, adding it was encouraging for the Treasury and the market that recent debt auctions "have been taken down with relative ease."

Other sales this week include $29 billion of 10-year notes on Tuesday and $19 billion of 30-year bonds on Thursday.

Also looming this week is a two-day Fed meeting. While no major policy decisions are expected, the central bank will issue its first economic projections since December.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes that is seen as an indicator of economic expectations was at about 64.40 basis points, roughly 4 basis points lower than at Friday's close.

Bids submitted in a Monday morning overnight repurchase agreement (repo) operation totaled $67.05 billion, according to the New York Federal Reserve, which said it accepted all the bids. Another $53.2 billion in bids were submitted and accepted in a 29-day repo operation.