US Treasury prices rose on Wednesday as worries over the anticipated path of Europe's debt crisis knocked stocks and the euro lower and bolstered the safe-haven value of US government debt. The price move, which analysts said was exaggerated by a lack of trading volume, came on a day when the Federal Reserve sold shorter-dated Treasury notes from its balance sheet.
Treasuries' gains accelerated on Wednesday morning around the time the Fed began its sale, and the euro fell below $1.30. "We saw pretty huge demand at the Fed sale this morning, much more than normal coverage," said Gennadiy Goldberg, interest-rate strategist at 4Cast, Inc. "It just shows that a lot of people are trying to get their hands on safety before the end of the year."
The Fed sold $8.63 billion in Treasury notes with maturities ranging from May 2014 to November 2014. A total of $90.81 million of Treasuries were submitted for the sale. The rally in Treasuries took yields on both 10-year notes and 30-year bonds back below the psychologically significant levels of 2 percent and 3 percent, respectively.
Investors on Thursday will be watching the reception for Italy's sale of debt with maturities as long as 10 years. Strong demand from international investors will be needed to hold benchmark 10-year Italian borrowing costs below the critical 7 percent level, which is seen as unsustainable. Italian 10-year debt was trading with a yield near 7.05 percent late Wednesday.
Benchmark 10-year Treasury notes on Wednesday traded 25/32 higher in price to yield 1.92 percent, down from 2.01 percent late Tuesday. The 10-year Treasury yield fell the most since November 9, keeping it on track for its largest yearly drop in yield since 2008. Thirty-year Treasury bonds gained 2-14/32 in price to yield 2.91 percent, down from 3.03 percent late Tuesday.