NEW YORK: US government debt prices slipped on Wednesday as a world stock rally and good demand at Spanish bond auctions curbed a safety bid, though persistent fears about European debt are seen supporting Treasuries in the near term.
Rising concerns about inflation, which helped drive gold to a record high above $1,500 an ounce, also weighed on Treasuries prices. The breakeven rates on US Treasury Inflation-Protected Securities rose for a second day.
"There is a bit of relaxation over the European sovereign debt situation," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
Spain sold 3.37 billion euros of debt on Wednesday, in an auction that was seen as a major test of its ability to avoid the escalating borrowing costs that have pushed Greece, Ireland and Portugal into seeking rescue.
Benchmark 10-year Treasury notes were down 5/32 in price, paring earlier losses. The yield was 3.38 percent, up 2 basis points from late Tuesday.
The 10-year yield on Tuesday touched a more than three-week low of 3.34 percent. It hovered at the bottom of its current trading range and its 100-day moving average of 3.397 percent.
Wall Street stocks rose 1.3 percent on upbeat company results, and MSCI's all-country world stock index gained 2 percent.
Somewhat stronger-than-expected data on US home resales helped lift stocks, while the bond market registered little reaction. Economists said the housing recovery remained slow with much of the turnovers still stemming from foreclosures and short sales.
EUROPE SEEN MORE DISTRESSED
US government debt performed slightly better than its German counterpart after solid bidding for Spain's auction of 10-year and 13-year notes stoked more selling in Bunds. See
But the market still showed signs of investor unease over European debt levels. Madrid paid investors 31 basis points more on its 10-year paper than in March, while the five-year credit default swap on Greece, which traders speculate is in need of a debt restructuring, hit a record high.
At the moment, investors see the fiscal problems among euro zone peripheral nations and their toll on the region as more pressing than the United States' long-term deficit problem.
"The market is more focused on that than the S&P comment," said Sean Simko, senior portfolio manager at SEI Investments in Oaks, Pennsylvania.
Standard & Poor's on Monday revised its outlook for the US credit to negative from stable, warning that a downgrade could be in store if the United States does not find a way to cut its budget deficit within two years.
Despite that warning, the appetite for Treasuries has remained resilient this week, boding well for upcoming supply.
The US Treasury Department will sell $14 billion in five-year TIPS on Thursday. It is expected to sell $99 billion in two-year, five-year and seven-year debt next week.
In the when-issued market, traders expected the new five-year TIPS due April 2016 to clear at a yield of minus 0.209 percent. This compared with a yield of minus 0.550 percent on the five-year TIPS sold last October.
"The auction should go well," SEI's Simko said. "Inflation expectations continue to grow."
The five-year breakeven rate, which measures investors' inflation expectations over five years, was quoted at 2.36 percent, roughly 1 basis point higher than late Tuesday.
Meanwhile, the Federal Reserve bought $1.5 billion in TIPS on Wednesday, as a part of its $600 billion bond-purchase program aimed to hold down long-term borrowing costs and foster economic growth. More than half of its TIPS purchases were in 30-year TIPS issue.
Comments
Comments are closed.