Bonds under pressure, 10-year yield at 10-month high

TOKYO: US Treasuries were on the defensive on Thursday, with the 10-year yield briefly touching a 10-month high in Asia after a tepid sale of 10-year debt the previous day stoked concerns of a further fund shift out of bonds to riskier assets.

On Wednesday, the Treasury sold $24 billion in 10-year notes at a high yield of 2.046 percent, above what the market had expected.

The yield on the new notes rose to as high as 2.061 percent in Asian trade, the highest for the current 10-year notes since April last year, rising above the Feb. 4 high of 2.0590 percent.

Treasury yields could make a clear break above their recent trading ranges if an upcoming auction of $16 billion 30-year bonds later in the day also fails to attract strong demand. The 30-year yield stood at 3.238 percent, just under a 10-month high of 3.254 percent hit last week.

The rise in yields came even after data showed on Wednesday US retail sales barely rose in the month as tax increases and higher gasoline prices restrained spending.

Many investors expect global growth to gain momentum this year as the euro zone shows some sign of stability while the Chinese economy rebounds, reducing the attraction of bonds.

Investors are now focused on a package of automatic spending cuts, which are due to kick in on March 1 unless lawmakers agree on alternative budget measures or delay negotiations to a later date.

While concerns about spending cuts could prop up Treasuries for now, some traders are of the view the market may have already priced in these cuts to some degree.

Senate Republican leader Mitch McConnell said on Tuesday he expects across-the-board cuts, known as sequester, to begin on schedule.