Supply worries knock down US Treasury bills

US Treasury bills and long bonds ended weaker in erratic trading on Thursday amid concerns about increased borrowing and debt supply from the government to finance its massive financial bailout. The US Treasury sold $70 billion in cash management bills, bringing the week's total bill sales to $194 billion. It plans to sell another $60 billion cash management bills on Friday.
The prices on other Treasury maturities were modestly lower but they fared better than bills and the long bond in part on shortcovering in the wake of dismal manufacturing data that fanned fears of a deep, protracted US recession. Intraday losses in the stock market generated brief flurries of safety bids into bonds, but the market's wild swings failed to sustain those flows, analysts said.
"It's a choppy and uncertain market," said Lee Olver, fixed-income strategist at SMH Capital in Houston. Investor anxiety heightened on more grim economic news, a day after the government said retail sales recorded its largest single-month drop in more than three years.
US industrial output posted the biggest monthly decline since 1974 in September, the Federal Reserve said. A report from the Philadelphia Fed showed US Mid-Atlantic factory activity in October fell to its lowest level in 18 years. On the housing front, a private index on home builder confidence hit a record low in October. "You are working with a backdrop of negative or very sluggish growth," said Tom Girard, co-portfolio manager at MainStay Income Manager Fund in New York. "The economic fallout is just beginning."
Poor economic news typically boost bond prices. But worries about the flood of government debt hitting the market have offset the day's gloomy data, exerting pressure on the short-end and long-end of the Treasury curve. The one-month bill rate rose 4 basis points while other bill rates jumped as much 29 basis points.
The price on US 30-year bonds fell 28/32 and their yield, which moves inversely to price, rose to 4.25 percent, up 5 basis points from late Wednesday. Among other maturities, two-year notes were down 3/32 to yield 1.62 percent, up 6 basis points from late Wednesday, while benchmark 10-year Treasury notes were down 1/32 with a yield of 3.96 percent, up 1 basis point from late on Wednesday.