US government bond prices were slightly higher on Thursday after an auction of benchmark 10-year notes was met with modest demand. Traders will next look for direction to a speech by Federal Reserve Chairman Ben Bernanke on Friday.
The $13 billion of new 10-year notes were sold at a high yield of 4.627 percent, with a bid-to-cover ratio, a gauge of demand, of 2.21, broadly in line with recent averages. The auction "was mediocre, nothing out of the ordinary. I think we're probably going to be pretty steady for the rest of this week," said Beth Malloy, bond market analyst at Briefing.com in Chicago.
The 10-year note traded up 1/32 in price for a yield of 4.63 percent, versus 4.64 percent just before the auction and versus 4.64 percent late on Wednesday.
Indirect bidders, which include foreign central banks, purchased about 34 percent of the new 10-year notes, in line with previous auctions this year. Earlier in the session, bond prices slipped after China's central bank chief said that country had a very clear plan to diversify reserves.
China is the second-biggest foreign holder of US Treasuries with $339.0 billion as of August, according to US Treasury Department data. Although it was unclear whether diversification would involve any selling of Treasury securities and when the plan might take place, the uncertainty put some pressure on Treasuries, strategists said. "It is a talking point. We have backed off from the (price) highs, so it is certainly getting some attention," said David Ader, head of government bond strategy with RBS Greenwich Capital in Greenwich, Connecticut.
But Ader added that he would "want to be cautious about overstating its direct impact" on the Treasury market. China has a clear plan to diversify its $1 trillion foreign exchange reserves and is considering various options to do so, its central bank governor Zhou Xiaochuan said on Thursday.
"All central banks are trying to diversify," Zhou told Reuters on the sidelines of a European Central Bank conference in Frankfurt. "We have had a very clear diversification plan for several years."
Treasuries had little reaction to one of the few market-moving economic data points on the week. The preliminary reading on the University of Michigan's consumer sentiment survey which came in lower than expected. The November index slipped to 92.3 from 93.6 in October and below analysts' forecasts of 93.6.
On tap for Friday is a speech by Fed Chairman Bernanke at 8:45 am EDT (1345 GMT) on monetary policy. Two-year notes were unchanged in price for a yield of 4.76 percent, compared with 4.76 percent on Wednesday.
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