US Treasury debt rallied on Friday, extending the retreat in benchmark yields from eight-month highs as bond investors breathed a sigh of relief following a week of heavy government borrowing. The market underwrote and distributed $65 billion of bonds with relative ease and will not face another round of coupon supply for more than a week, though this was a drop in a $2 trillion bucket of new debt being sold this fiscal year.
The market was still basking in the glow of Thursday's stellar auction of 30-year debt, though it took a sell-off in the days leading up to that sale to boost yields enough to attract a host of long-term, or so-called "real money" buyers.
Benchmark 10-year yields hit eight-month highs above 4 percent twice this week, but retreated from there on Thursday and Friday amid the euphoria over the long bond auction. In late New York trade on Friday, 10-year notes were up 21/32, pushing their yields down to 3.78 percent from Thursday's close of 3.87 percent.
The 30-year long bond gained 30/32, pushing yields down to 4.63 percent from 4.69 percent at Thursday's close. The Treasury sold three-, 10- and 30-year debt securities in auctions this week, concluding with the long bond sale on Thursday.
The 10-year sale went poorly, judging by the way it was priced, but the robust results at the two other auctions appeared to make up for it. The bond rally occurred even though US consumer confidence rose to a nine-month high in June, though not quite as strong as expected. Typically, better-sounding news related to the economy is a negative for bond prices because increased economic activity can risk inflation, which erodes the value of fixed-income instruments and their cash flows.
The market also shrugged off hints of inflation worries in the consumer sentiment report and in government data showing that import prices rose 1.3 percent in May - powered by higher petroleum prices. Treasury Inflation Protected Securities saw very high volume, according to Tradeweb data, though 10-year TIPS underperformed conventionals, suggesting that investors were not acting on inflation concerns.
The market appeared sanguine about a Wall Street Journal article implying that the Fed would not boost its purchases of Treasuries beyond those it has already said it would buy. At its March 18 meeting, the Fed said it had decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. It has purchased about half of that amount so far. The Fed is scheduled to buy next week, purchasing bonds maturing from 2012 to 2013 on Tuesday and 2016 to 2019 on Wednesday.
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