Supply and stock market gains weighed on US Treasuries prices on Wednesday as the 30-year bond saw more price cuts a day before a Treasury bond auction. A well-bid 10-year Treasury auction on Wednesday allowed Treasuries to erase the worst of the day's losses. But another day of stock market gains kept US Treasuries prices in the minus column.
The Fed's most recent Beige Book, a description of business conditions across the nation from mid-November through December, also helped keep Treasuries from moving into the plus column even after most of the day's losses were erased. US benchmark 10-year notes were down 7/32 in price in late trade, their yields at 3.37 percent, compared with 3.34 percent on Tuesday.
Before the Treasury's 10-year note auction, 10-year note prices were down twice as much. Still, 10-year yields remained in the 3.30 percent to 3.50 percent range they have maintained since hitting a seven-month high of 3.57 percent in mid-December. The US Treasury is in the midst of selling $66 billion in new supply this week. It sold three-year notes on Tuesday and 10-year notes on Wednesday. It will sell $13 billion in re-opened 30-year bonds on Thursday.
The selloff in Treasuries cheapened the 10-year note and drew bidders to a strong $21 billion auction Wednesday afternoon. But if Spain and Italy struggle to sell debt at reasonable prices and yields, a flight to safe-haven US debt could push Treasury prices higher. That would make the 30-year bond look more expensive and less desirable, and could complicate the US bond auction, set for 1 pm (1800 GMT). Spain is set to auction a maximum of 3 billion euros in two-year bonds, while Italy will sell up to 7 billion euros combined in four- and 15-year bonds.
In late trade, 30-year bonds were down 21/32, their yields at 4.53 percent, up from 4.49 percent on Tuesday. The gap between yields on 2-year and 30-year Treasuries reached 392 basis points, up from 387 basis points on Tuesday. The Federal Reserve Bank of New York's Open Market Desk announced the new schedule of Treasury purchases to be completed over the course of the next month.
The New York Fed announced $112 billion in purchases to be completed over the course of the next month, $80 billion of which are associated with the $600 billion large-scale asset purchase (LSAP) program, said Thomas Simons, money market economist at Jefferies & Co in New York. The other $32 billion involve the reinvestment of proceeds from the Fed's agency debt and mortgage-backed securities portfolios, he noted.