US prices slip as debt, Saudi Aramco in focus this week

NEW YORK: US Treasury debt prices edged lower in generally quiet trading on Monday, pressured by upcoming government debt and corporate supply.

Investors this week are bracing for Saudi Aramco's inaugural bond deal as well as the US Treasury's $78 billion auction of notes and bonds. The Saudi deal is expected to be priced on Tuesday.

"Supply is definitely a factor this week with the Saudi Aramco deal along with the Treasury auctions," said Justin Lederer, Treasury analyst, at Cantor Fitzgerald in New York. "With the Saudi deal set to be priced tomorrow, the longer bonds are getting a little bit of pressure."

Wall Street dealers typically lock in borrowing costs for corporate bonds they are underwriting by selling Treasuries as a hedge before the deal is completed. Once the bond is sold, the dealer buys back Treasuries to exit the rate lock.

Demand for Saudi Aramco's international bond, seen as a gauge of potential investor interest in the oil company's eventual initial public offering, is higher than $30 billion, Saudi Energy Minister Khalid al-Falih said on Monday.

That represents an oversubscription of more than three times the size of the bond if Aramco sticks to its plan to issue around $10 billion in the debt sale this week.

In the United States, the US Treasury will auction $38-billion in three-year notes, $24 billion in 10-year notes, and $16 billion in 30-year bonds.

"Demand could be decent to solid given wide yield differentials to foreign sovereigns and given the FOMC (Federal Open Market Committee) is perceived to be out of a tightening mode, and as inflation is seen to be benign," said Action Economics in its blog.

Investors typically sell Treasuries ahead of an auction to push the yield higher so they can buy them at a lower price.

In mid-morning trading, US 10-year note yields rose to 2.515%, up from 2.499% late on Friday.

US 30-year bond yields, were also up at 2.927% , from 3.909% on Friday.

On the short end of the curve, US 2-year yields were up at 2.349%, compared with Friday's 2.343%.

Yields inched higher after data showed new orders for US-made goods fell less than expected in February.

Factory goods orders dropped 0.5 percent in February. Economists polled by Reuters had forecast factory orders falling 0.6 percent for the month.