Treasury yields dip

US Treasury yields for most maturities fell on Wednesday as a quarterly refunding program that aims to finance the country's massive fiscal deficit came in short of expectations, reducing the pressure on prices caused by the increase in debt supply. Treasury yields had risen overnight in the run-up to the refunding announcement. While the US Treasury did increase the size of the auctions, analysts said the overall outcome was somewhat underwhelming.
"There are no TIPS (Treasury Inflation Protected Security) increases, which tends to reduce the effective duration of the forward auctions," said Jim Vogel, interest rates strategist, at FTN Financial in Memphis, Tennessee. "Second, the increases from the 5s through 30s were modest compared to the upper band of expectations," he added.
Yields, however, came off their lows after the Federal Reserve held interest rates steady at its monetary policy meeting, and said inflation was close to its 2 percent target. Investors expect the Fed to raise interest rates in June.
"I think a June rate hike is a done deal unless something dramatically changes between now and June," said Stephen Stanley, chief economist at Amherst Pierpont Securities in Stamford, Connecticut. The biggest driver though of the US Treasury market on Wednesday was still the refunding announcement.
Treasury announced a $73-billion refunding package for May, up from the $66 billion in February, with the bulk of the increase coming from short-end maturities. Treasury will sell $31 billion in 3-year notes, $25 billion in 10-year notes, and $17 billion in 30-year bonds. Treasury will raise the size of the 2- and 3-year note auctions by just $1 billion per month in the second quarter, compared with the $2 billion increases in the first.
The refunding announcement overshadowed a US private-sector payrolls for April that landed roughly in line with forecasts.
Before the release of the private payrolls data, yields on the US two-year note, the maturity most sensitive to the rate increase outlook, hit their highest in more than nine years.
Payrolls processor ADP said US private-sector employment grew by 204,000 last month, slightly exceeding expectations of 200,000 jobs.
Next up, market participants are looking to US nonfarm payrolls data due out on Friday. Analysts are expecting an addition of 192,000 jobs, according to a Reuters poll.
In afternoon trading, US 10-year yields were at 2.970 percent, down from 2.976 percent late on Tuesday.
US 30-year yields, however, rose to 3.140 percent, from Tuesday's 3.137 percent. On the front end of the curve, US two-year yields hit a 9-1/2-year high of 2.521 percent. They were last at 2.5012 percent.