US Treasury prices fall

US Treasuries fell on Tuesday as a surge in consumer confidence and worries over burgeoning bond supply hammered the market. The selloff pushed benchmark 10-year yields above 3.0 percent, which had been viewed by some as the Federal Reserve's line in the sand as it seeks to maintain super-easy monetary conditions to bring an end to the recession.
US consumer confidence posted its biggest jump in more than three years in April, dimming the safe-haven allure of government bonds, while a $35 billion auction of 5-year notes provided the latest reminder of the mountain of debt hitting the market this year. "I thought it was a pretty good auction," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.
"I think the market is just a little bit heavy here with supply." The benchmark 10-year note was down 29/32 in price on the day, sending yields up to 3.02 percent from Monday's 2.91 percent. The 3 percent yield level had become a line that markets were reluctant to cross due to the Federal Reserve's program of buying Treasuries to keep borrowing costs low throughout the economy.
Five-year notes fell 14/32 on the day, pushing yields up to 1.95 percent from 1.85 percent on Monday. On Wednesday, the market will have to digest another auction, this time from a sale of 7-year notes, which is part of this week's record $101 billion in coupon issuance.
The bond market is also awaiting Treasury's quarterly refunding announcement on Wednesday, which will give more details of its issuance strategy. Many analysts expect it to move to monthly auctions of 30-year long bonds from the current schedule of eight times per year. The refunding is also expected to produce a bit more than $70 billion worth of issuance next week.
"There is a big refunding next week and the market is already under some pressure with stocks a little better on the day. We are doing the normal auction set up," said David Ader, head of government bond strategy at RBS Securities. The market's losses pushed the 30-year long bond down more than two full points on the day.
It was last trading down 2-12/32, yielding 3.98 percent versus 3.83 percent late on Monday. Analysts expect debt issuance of $2 trillion this year as the government seeks to finance bank bailouts, economic stimulus measures and falling tax revenues. The US Treasury Department said on Monday it expects to borrow $361 billion of marketable debt in the April-June quarter, up $196 billion from earlier estimates.