LONDON: US 10-year Treasuries eased on Thursday as traders made way on their books for an auction of seven-year notes later in the day, interrupting a rally driven by weak economic data.
The Treasury will complete this week's debt offerings with a $29 billion seven-year debt auction following an average sale of a two-year paper on Tuesday and modest demand at a five-year note auction on Wednesday.
"We have this seven-year auction coming up and after the rally we had there's a bit of profit-taking," one trader said.ž
Ten-year notes eased 2/32 in price to yield roughly 1.708 percent. The 10-year yield has dropped 14 basis points so far this month, putting it on track for its biggest monthly drop since July 2012.
Treasuries rallied in early April after the Bank of Japan announced its sweeping monetary easing and US jobs data proved surprisingly weak. They later pulled back but regained footing toward the middle of the month, supported by weak retail sales data and by the financial storm in Cyprus.
Their advance has stalled since then, however. The 10-year yield has mostly moved within a range of about 1.74 percent to 1.67 percent since April 15, with the exception of a short-lived dip on Tuesday to as low as 1.643 percent.
Capital flows data showed that Japanese investors sold a net 862.6 billion yen in foreign bonds last week, continuing a trend of fund repatriation seen so far in April.
Seasonal tendencies suggest Japanese investors may soon start increasing their overseas asset buying, said Taisuke Tanaka, chief FX strategist at Deutsche Securities in Tokyo.
"From late April through May, pensions reallocate funds for the new fiscal year, and tend to increase purchases of foreign securities. Lifers also start putting into action the investment strategies they announce in the latter half of April," he said in a recent research note.
Strategies announced by Japanese life insurers for Japan's financial year to March 2014 suggest that they intend to increase holdings of currency-hedged overseas bonds in response to factors such as low Japanese government bond yields, although some increase in unhedged foreign bond buying is to be expected as well, Tanaka said.
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