US Treasuries rose on Wednesday as the prospect of a longer-term Spanish debt auction made safe-haven US Treasuries a popular investment choice. An auction of 12- and 18-month Spanish debt overnight was considered a success, but a more challenging longer-term debt sale looms on Thursday, when Spain will sell two- and 10-year bonds. Investors see Thursday's sales as a better test of demand for the country's debt.
"Interest in Spain's debt and the overall plan is waning. This means that safe assets like Treasuries are once again becoming more of the core investment, at least until some clarity in the euro zone is achieved," said Kevin Giddis, head of fixed income capital markets at Morgan Keegan in Memphis, Tennessee.
Benchmark 10-year Treasuries traded 3/32 higher in price to yield 1.98 percent, down slightly from 1.99 percent late Tuesday but within the 1.95-2.05 percent range it has moved in over the past week as mixed economic data vied with developments in the euro zone. The 30-year bond yield was at 3.13 percent, easing from 3.14 percent late Tuesday.
Spain sold short-term securities earlier, noted Jason Brady, portfolio manager and managing director at Thornburg Investments, with $73 billion in assets under management, in Santa Fe, New Mexico. "But the 10-year Spanish debt sale is a much bigger deal because those maturities are outside the window of the ECB's three-year lending operations," he said. "You'll get a more market-based result." "Unemployment in Spain is very high and also skewed toward younger folks having less opportunity," he said. "Bringing growth back to Spain is going to be hard; very hard. That would tend to support safe-haven Treasuries."
Bill Gross, manager of PIMCO, the world's largest bond fund, sounded dubious about the Spanish auction on CNBC on Tuesday in light of the European Central Bank's "unwillingness to continue to buy sovereign debt." He cited the absence of such purchases "really for a month to a month and a half." Gross runs the $252 billion PIMCO Total Return Fund. Gross called the ECB's behaviour a "tightening manoeuvre" and said recent comments from the Federal Reserve's Janet Yellen and New York Fed President William Dudley about the "problematic" nature of quantitative easing show that the United States is doing "the same thing."
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