US bonds edge down ahead of supply

TOKYO: Treasuries edged down in Asia on Thursday as investors prepared for new supply this week.

A $29 billion auction of seven-year notes on Thursday could meet strong demand as the maturity has been trading "special" or at negative rates in the repurchase market.

The Federal Reserve will also conduct two sales of shorter-dated Treasuries this week as part of its "Operation Twist" stimulus programme, aimed at bringing down long-term rates.

"We have a lot of supply to digest this week, which is putting upward pressure on yields, though the market is taking a breather in Asia today," said a fund manager at a Japanese trust bank.

The yield on the 10-year note inched up to 2.02 percent from 2.01 percent in late US trade, though it was down from 2.06 percent in Asia on Wednesday.

The yield on 30-year Treasuries edged up to 3.16 percent from 3.15 percent in US trading, but still down from 3.21 in Asia on Wednesday.

A $35 billion auction of a new five-year note issue on Wednesday drew only mediocre demand, with the yield coming in below expectations at 0.900 percent.

While that suggested aggressive bidding among some players, indirect bidders, which include overseas central banks, bought only 41.8 percent of the latest offering - their smallest share at a five-year auction since last July.

The Fed on Wednesday bought $1.84 billion of Treasuries maturing February 2036 through August 2041.

Underpinning demand for safe-haven bonds, Brent crude held steady near a nine-month high of about $123, as supply worries caused by heightened tension between Iran and the West offset concern that a slowdown in the global economy could curb oil demand.

Bond prices were also supported by concerns about Greece's ability to stick to its austerity plan and a possible slowdown in European growth after Markit's Eurozone Services Purchasing Managers' Index unexpectedly shrank.