Treasuries fall

US Treasuries prices fell on Tuesday as traders prepared for sales of re-opened 10- and 30-year Treasury securities, but the day's steepest losses were trimmed after a three-year note auction drew a strong bid. A show of support by Japan for hard-hit eurozone debt eased some concerns over the region and weighed on safe-haven US government debt.
So did stock market gains, the latter a sign of investors' willingness to shoulder more risk, again at the expense of safe-haven US government debt. However, when stocks trimmed their best gains, Treasuries trimmed their worst losses. Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut, said the three-year note auction enjoyed an average "takedown" with non-dealer bids 49.7 percent of the total, compared with a 50 percent norm.
"Treasuries were trading lower leading into the auction, building in a strong outright concession for three-years on the day (although the long-end has underperformed," Lyngen said. US benchmark 10-year notes fell 13/32 in price, their yields rising to 3.34 percent from 3.29 percent late Monday.
Ten-year yields have been largely rangebound in the area of 3.30 percent to 3.50 percent in the past few weeks after hitting a seven-month high of 3.57 percent in mid-December. The US Treasury is in the midst of selling $66 billion in new supply this week, the first part of which was Tuesday's sale of $32 billion in three-year notes. The three-year auction stopped at 1.027 percent versus a when-issued bid Lyngen put at 1.029 percent. In mid-afternoon trade, three-year note yields had eased to 0.98 percent.
Dealers were awarded 44.5 percent of the sale versus 50 percent, the average of the last four three-year note auctions, Lyngen said. The amount of bids received over those accepted, known as the bid-cover ratio, was 3.06 versus the 3.08 average of the last three-year Treasury note auctions, he said.
The Treasury will sell $21 billion in re-opened 10-year notes on Wednesday and $13 billion in re-opened 30-year bonds on Thursday. Traders said the 10-year yield should rise for Wednesday's sale to go well. A yield of 3.38 percent or 3.40 percent would be more attractive to potential bidders than the current when-issued yield of 3.345 percent, they said.
Analysts will likely examine the participation of foreign central banks in Wednesday's 10-year Treasury note sale, typically seen in the auction's so-called indirect bid. That bid was strong in Tuesday's three-year Treasury note auction. Government debt prices often dip ahead of auctions as dealers short Treasuries to prepare for the sale before buying back the debt.
"The long end tends to come under pressure coming into these long-end auctions," said Suvrat Prakash, interest rate strategist at BNP Paribas in New York. Prakash said in general, quite a bit of money remains "to be put to work." Buybacks have returned money that investors can use to participate in the auctions.
The Federal Reserve bought $7.80 billion in debt maturing 2016 and 2017 on Tuesday as part of its $600 billion purchase program known as quantitative easing, or QE2, after buying $7.79 billion in notes due between 2018 and 2020 on Monday. Thirty-year bonds fell 15/32, their yields rising to 4.49 percent from 4.46 percent on Monday. The gap between yields on 2-year and 30-year Treasuries rose to a new high of 394 basis points, compared with 389 basis points on Monday.