US Treasury debt prices were little changed in thin trading on Wednesday after a $20 billion auction of two-year notes left benchmark yields steady near three-month highs. The Treasury's monthly sale of two-year notes proceeded as expected, drawing good demand, analysts said.
The US Treasury sold $20 billion of the two-year securities at a high yield of 4.930 percent, with a 3.03 ratio of bids offered to those accepted. "The two-year note auction drew strong interest from primary dealers, but this was more of a help to the short end of the maturity range than to the whole curve," said Josh Stiles, senior bond strategist at IDEAglobal.
The two-year notes were offered at "the cheapest levels since August," Stiles said. "So much of the hope for a Federal Reserve rate cut have been priced out that two-years have started to look like a more attractive, safer place to be."
Two-year Treasuries are more sensitive to perceptions of Federal Reserve policy than longer-dated issues, which fluctuate with changes in inflation expectations.
Still, with the market expecting Fed policy to stay steady for the next few months, two-year yields did not wander far. Two-year notes were up 2/32 in late trade, their yields easing to 4.92 percent from 4.96 percent on Tuesday.
The new two-year notes auctioned on Wednesday yielded 4.9275 percent in when-issued trade. "It's a perfect scenario for the Fed. There is no need for them to do anything," said Robert Auwaerter, principal at Vanguard's Fixed Income Group in Valley Forge, Pennsylvania. The Federal Open Market Committee (FOMC), the Fed's policy-setting group, will meet next Tuesday and Wednesday and economists expect that the FOMC will leave the key federal funds rate at 5.25 percent.
"The market is not doing anything," said John Canavan, market analyst at Stone and McCarthy Research Associates. "We had a solid two-year note auction, but nothing has really mattered to the market. No economic data have come out to alter the fundamental underlying picture. Therefore prices haven't strayed far from unchanged." The benchmark 10-year Treasury note was unchanged in price at 98-18/32, yielding 4.81 percent.
Stiles said with a five-year Treasury note auction and data on December existing home sales due on Thursday, the market held steady. The Treasury will sell $13 billion in new securities on Thursday in its monthly five-year note auction. In trading of other maturities, five-year notes were unchanged in price for a yield of 4.81 percent, and the 30-year bond was unchanged in price to yield 4.91 yield.
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