NEW YORK: US Treasury yields were steady on Wednesday afternoon following strong demand at auction for $23 billion in new supply of 10-year notes offsetting expectations that Thursday morning's consumer price data release will show swelling inflation.
The US Treasury Department on Wednesday sold $23 billion of 10-year government notes, with 22.64 percent of the supply taken by primary dealers, the lowest since January. Primary dealers are responsible for absorbing any supply not bought by direct or indirect bidders.
Indirect bidders, which include fund managers and foreign central banks, took 63.92 percent of the supply, higher than 61.27 percent in August and the average of 61.49 percent. Direct bidders took 13.44 percent, higher than the 11.27 percent taken in August and the auction average of 5.10 percent.
"We had a very, very good 10-year auction which is helping keep a lid on yields," said Mary Ann Hurley, vice president, fixed income trading at D.A. Davidson.
The offering was smaller than the $26 billion auctioned in August, but larger than the average of $21 billion at this maturity. New supply of Treasuries has surged in 2018 as the Fed has reduced its bond buying and the Treasury has issued new debt to pay for President Donald Trump's $1.5 trillion tax cut.
Treasury prices rallied modestly on Wednesday morning after the Labor Department reported that the producer price index fell unexpectedly last month, as declines in the prices of food and a range of trade services offset the higher cost of energy products.
The market's response on Wednesday was muted, however, because overall inflation is steadily rising, with expectations that the record job opening numbers reported on Tuesday and strong wage gains last week will be reflected in Thursday's consumer price index data. The Fed, which is expected to raise interest rates later this month for the third time in 2018, is less concerned with the PPI report.
"I do caution on the PPI number, because the Fed really cares about what the final buyer is paying. (PPI) weighs very little in the Fed's decision," Hurley said.
On Wednesday afternoon the two-year yield, which reflects market expectations of Fed interest rate hikes, hit a fresh decade high for the fourth consecutive day, topping out at 2.7522 percent.
At 3:16 p.m. ET (19:16 p.m. GMT), the 10-year yield was at 2.966 percent, down from Tuesday's close at 2.979 percent. The 30-year yield was last at 3.109 percent, below its last close at 3.124 percent.
Comments
Comments are closed for this article.