Yields fall as supply eases

US Treasuries ended stronger on Thursday, even after the Treasury had to pay more to sell new 30-year bonds, as an overhang of government and corporate debt supply passed. The government's $16 billion sale of 30-year bonds saw lacklustre demand, resulting in a yield of 3.044 percent, the highest since November and around two basis points above where traders had expected it to price.
"It was a sizable tail, but I don't think it was terrible," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York. "We rallied two basis points going in, it tailed two basis points, so it wasn't like it was out of the realm. It was right in the middle of today's trading range." Thirty-year bonds continued to underperform other Treasury issues after the auction. The yield curve between five-year notes and 30-year bonds steepened to 155 basis points, it's steepest since October 29.
Treasury yields have jumped in the past two-and-a-half weeks in line with a dramatic sell-off in German government debt, which has been roiled by a rapid unwind of bets placed on the European Central Bank's debt purchase program as well as other factors. Higher yields may have helped lure some buyers to the Treasury's other auctions this week, including a $24 billion sale of 10-year notes on Wednesday that sold to strong demand, and a solid $24 billion sale of three-year notes on Tuesday. German bonds were relatively steady on Thursday, helping to support US government debt.
"Trading is calming down in Europe," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee. "Yields still aren't improving, but the frenzy is less, so that helps Treasuries disconnect from the sharp rise in Europe." Benchmark 10-year note yields fell to 2.26 percent from 2.27 percent late on Wednesday. Data on Thursday also showed US producer prices resumed their downward trend in April as the cost of energy fell and a strong dollar kept underlying inflation pressures benign, supporting views that the Federal Reserve will only raise interest rates later in the year.