US bonds slump

US Treasury debt prices tumbled on Tuesday as a powerful surge on Wall Street and worries about the relentless deluge of government debt supply siphoned safe-haven bids for bonds. The US Treasury Department is scheduled to sell a combined $182 billion in securities this week, a part of the $2 trillion borrowing expected this year to finance the federal stimulus and bailout programs.
"The market is having problems with digesting this supply," said Steve Mahoney, lead portfolio manager at Glenmede Investment Management in Philadelphia. Part of the selling pressure came from traders trying to cheapen the market ahead of this weeks deluge of supply. "The market was trading weaker ahead of the auction, building in a strong concession for the record three-year supply," said Ian Lyngen, interest rate strategist at RBS Greenwich Capital in Greenwich, Connecticut.
Tuesdays record $34 billion of three-year Treasury notes drew solid demand with strong participation from indirect bidders, which included foreign central banks. The Treasury also garnered robust demand for $34 billion in one-month bills and $24 billion of one-year bills. With more than three-quarters of the weeks supply out of the way, investors will make room for $18 billion in 10-year notes on Wednesday and $11 billion in 30-year bonds on Thursday.
In addition to supply, a dramatic surge in the stock market, a rare phenomenon in recent days, reduced safe-haven demand for Treasuries, analysts and traders said. Wall Street stock indexes gained more than 5 percent on news that Citigroup said it was profitable in the first two months of 2009 and a key lawmaker said he expects to bring back a rule that makes it tougher to sell stocks short.
Benchmark 10-year notes fell 1 point in price; their yield which moves inversely to their price was 2.98 percent, up 12 basis points from late Monday. The 30-year bond lost more than 2 points to yield 3.70 percent, up 13 basis points from late Monday. Trading could remain volatile, with concerns about the nations banking sector still running high, analysts said.
Such fears have put a ceiling on bond yields, which have been rising steadily for three months but are below peaks reached last month, when 10-year rates surpassed 3 percent. Glenmedes Mahony, however, expects further downward pressure on Treasury prices given the predicted waves of supply. He favours high-rated corporate debt which offers higher than yields than Treasuries.