US Treasury prices slipped in thin, pre-holiday trading on Wednesday, with notes maturing in five and seven years doing worse ahead of supply next week. Economic reports were a little weaker than expected, a characterisation that should have supported bond prices. But traders said desks were thinly staffed and likely to get more so ahead of an early market close at 2 pm EST (1900 GMT) on Thursday before the Christmas Eve holiday.
"Trade is pretty illiquid and the Fed completed the last of its Treasuries purchases for the week so the market is now moving on to a little bit of concern about supply," said Chris Diaz, co-manager of Atlanta-based ING Global Bond Fund, part of ING Investment Management, which has $515 billion in assets under management.
The Federal Reserve on Wednesday bought $2.07 billion in debt maturing between 2021 and 2027, its last purchase until next Tuesday. The Fed is in the midst of buying $600 billion of Treasuries over the course of half a year as part of its effort to stimulate economic growth.
The Treasury has scheduled auctions of two- five- and seven-year paper next week. "There's always some concern about whether there will be enough demand to take down Treasury supply in the last week of the year," Diaz said. "We'll get some Fed buybacks next week, but we will also get about $100 billion in supply in two-years, five-years and seven-years."
The five- and seven-year sector of the maturity curve underperformed other sectors on Wednesday, Diaz noted. Five-year notes fell 7/32 in price, the yield rising to 2 percent. Seven-year notes fell 11/32, their yields rising to 2.72 percent. A typical pattern for the Treasury market in the pre-holiday period has been to trade more strongly in the morning before the Fed makes its purchases and then trade lower once the purchases are completed. Revised figures on US third-quarter gross domestic product and personal spending should have been supportive for US Treasuries, but had scant market impact.
The benchmark 10-year note slipped 10/32 in price, its yield rising to 3.35 percent from 3.30 percent on Tuesday. Thirty-year bonds dropped 13/32 in price, their yields rising to 4.45 percent. A copious amount of economic data is due on Thursday before the market closes for the extended holiday weekend.
The market will focus on November figures for durable goods orders, personal income and spending, and the latest weekly count on new jobless claims, said Joseph LaVorgna, chief US economist at Deutsche Bank Securities in New York. Economists polled by Reuters estimated that durable goods orders fell 0.5 percent in November after a 3.4 percent drop in October. Non-defence orders excluding aircraft, however, viewed as a proxy for business spending, were expected to be up 2.5 percent in November after a 4.3 percent October drop.
November personal income is estimated to have risen 0.2 percent while spending rose 0.5 percent, according to a median estimate from a Reuters poll. New jobless claims filed in the week ended Saturday are expected to total 420,000, as they did the previous week. New home sales figures, due at 10 am (1500 GMT), are expected to show sales occurred at an extremely subdued, annualised pace of 0.30 million, up from an annualised 0.283 million in October. The final December reading for the Reuters/University of Michigan consumer sentiment index is expected at 74.7, up from 74.2 in November.