US debt prices up on Japan crisis ahead of supply

12 Apr, 2011

The US government is due to sell $32 billion in new three-year notes on Tuesday and $21 billion and $13 billion in 10-year and 30-year reopenings on Wednesday and Thursday.

"It's more of a flight to quality than anything else right now," one trader said. "We will cheapen up at the front end ahead of that supply but not just yet with the market nervous at the moment on the back of what's happening in Japan."

T-note futures were last 5/32 up in price at 118-39/64, while the three-year note was 5/64 up at 99-55/64, yielding 1.2991 percent.

The trader said gains for UK gilts after data showing an unexpected fall in British consumer price inflation in March were giving Treasuries some support as well.

The 10-year note yielded 3.5526 percent, down 3.4 basis points on the day, while the ultra-long 30-year debt yield was at 3.5526 percent, down 3.4 basis points.Yields have been rising over the past three weeks on the back of hawkish comments from some Federal Reserve officials, with little relief from a late Friday deal to avert a government shutdown.

Treasuries have outperformed German Bunds recently, as the European Central Bank raised interest rates last week and is expected to increase them further. The US/EU 10-year yield spread was last 8 basis points, down about 40 bps since early-February.

The spread attempted to go below the 10 bps level for seven times over the past six months, but it has bounced above it immediately each time.

Copyright Reuters, 2011

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