Treasuries dip

Longer-dated US Treasury debt prices dipped on Wednesday as strength in stocks eroded some of the safe-haven appeal of government debt, although yields remain very near six month lows. Shorter- to medium-dated notes found some support on Wednesday as robust demand in an auction of $35 billion of five-year notes showed the safe-haven allure of US government debt was still there despite the recent fall in yields.
"We have had a very choppy day - the five-year auction went very well, giving support to the intermediate to shorter sector of the curve but the long end is struggling," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle, adding "stronger equities are hurting the long end." Treasury yields have fluctuated for the past week at the bottom of their six-week range and hung near six-month lows and key technical resistance levels.
Though many investors are positioned for higher yields, weak data and a continuing safety bid due to eurozone debt concerns have kept a floor under Treasuries, leaving many to keep buying in order to cover short positions. The five-year note auction, the second of this week's $99 billion of Treasury note sales, proved investors were still keen to snap up US debt.
"Rich valuations were no impediment to supply today, with investors stepping up to strongly take down the five-year auction with ongoing concerns about the trajectory of US growth and the issues surrounding Europe still in the background," said John Briggs, strategist at RBS Securities in Stamford, Connecticut. The Treasury will sell $29 billion of seven-year notes on Thursday.
Five-year notes traded 1/32 higher in price to yield 1.77 percent, down slightly from 1.78 percent late on Tuesday. Benchmark 10-year Treasury notes traded 3/32 lower with their yield rising to 3.13 percent from 3.12 percent. Treasuries largely shrugged off data early in the day showing new orders for long-lasting US manufactured goods recorded their largest decline in six months in April.
Ten-year notes have tested technical resistance at about 3.09 percent - the lowest level since early December - three times in the past week. Two-year Treasury notes on Wednesday traded with a yield of 0.54 percent, down from a high yield of 0.56 percent in an auction of $35 billion of the notes on Tuesday, while 30-year bonds traded 13/32 lower in price to yield 4.28 percent, up from 4.25 percent late on Tuesday. The cost of insuring against a US default in the credit default swap market was relatively steady on Wednesday.