Steady in Europe, 30-year auction the focus

09 Aug, 2012

Ten-year bond yields were half a basis point higher at 1.68 percent, their highest since mid-June, and around 30 bps above their all-time low hit in late July.

But the extent of the yield rise was limited by uncertainty over when the European Central Bank might resume bond purchases to help Spain and Italy, traders said. The ECB said it would only take such a step after a country requested assistance, something that can't happen until at least September when the German constitutional court decides whether to give the go-ahead to a permanent euro zone rescue fund.

The Treasury department will sell $16 billion of 30-year bonds at 1700 GMT to meet its quarterly refunding needs. Demand at Wednesday's sale of 10-year notes - based on the bid to cover ratio - was the lowest since August 2009.

"We've had a decent sell-off so (the 30-year) sale should go OK but it's one of the harder ones to call," a trader said. "We may see some more pressure there going into the auction."

Thirty-year yields were flat at 2.75 percent, but up around 10 bps over the last week.

Credit Agricole rate strategist Orlando Green said in a note the market may struggle to take down the issuance. "The degree of appetite for the very long end of the curve has not been particularly strong, which suggests there is a risk of some indigestion when being absorbed into the market."

A drop in Chinese consumer inflation which left room for further policy easing, also diminished demand for safe-haven US debt. Annual consumer inflation fell to a 30-month low of 1.8 percent in July from June's 2.2 percent, while the producer price index dropped 2.9 percent in July compared with a year earlier.

Copyright Reuters, 2012

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