US bonds slip

US Treasury prices fell on Wednesday as a renewed appetite for stocks and other risky assets curbed demand for government bonds while an auction of 10-year notes enticed some investors. Wall Street rebounded on encouraging company earnings results and a more optimistic outlook from the Federal Reserve, following Tuesday's sell-off. Major US stock indexes were up as much as 1.1 percent.
Lingering jitters over appetite for Thursday's $13 billion of 30-year bonds, the last of this week's $84 billion Treasury supply, also curbed bond demand, analysts said. "No one wants to go into tomorrow too long," said Jeff Given, portfolio manager with MFC Global Investment Management in Boston. The Fed's Beige Book on regional business conditions said the US economy is slowly mending with more areas showing signs of improvements.
The Fed's latest economic snapshot trimmed expectations short-term interest rates will stay near zero through 2010. It also strengthened the case a US recovery is sustainable despite high unemployment and an anemic housing market.
This view was a particular drag on long-dated maturities. Their yields over their short-dated counterparts grew, not far from the record levels set on Monday. The two-year to 10-year part of the yield curve steepened to 283 basis points. This compared to an intraday record of 288 basis points two days ago.
The price on benchmark 10-year Treasuries was down 17/32 at 96-22/32. Its yield, which moves inversely with its price, was 3.78 percent, up from 3.72 percent on Tuesday. Three of this week's four US government bond auctions were well-received, suggesting general support for Treasuries despite growing worries over the bloated federal government deficit and the toll on its long-term credit-worthiness.
The Treasury Department said on Wednesday the United States posted a record $91.85 billion budget gap in December. The 10-year auction's bid-to-cover ratio, a gauge of overall demand, came in at 3.00, above its recent average. In the broader market, this 30-year issue traded down 1-10/32 in price for a yield of 4.71 percent, up nearly 9 basis points late on Wednesday. The 30-year yield spike followed an 11 basis point drop on Tuesday, the biggest single-day fall in four months, according to Reuters data.