US bonds rally

US Treasuries prices rallied on Wednesday, with the 30-year bond jumping over a point after dealers paid higher-than-expected prices for $20 billion in auctioned 10-year notes. Dealers said the auction fetched yields below where the issue of reopened notes traded at just before the sale, reflecting interest in Treasuries among cash-rich investors.
The sale boosted optimism over the results for an auction of $12 billion of reopened 30-year notes on Thursday, the fourth and final sale of a total of $78 billion in Treasuries this week. "It shows that there is a lot of cash on the sidelines that investors want to put to work," said Jeff Given, portfolio manager for fixed income with MFC Global Investment Management in Boston, adding "if you have this much demand in a 10-year security then you are probably going to have similar demand in the auction of 30-years tomorrow."
Benchmark 10-year Treasury notes traded 22/32 higher in price to yield 3.18 percent, down from 3.26 percent late on Tuesday, while the 30-year bond was 1-9/32 higher to yield 4.00 percent from 4.07 percent. Treasury yields move inversely to prices.
"The high real rates that the government bond market offers, and the preference to save still in vogue, the government market will have more of a bias to head lower in rates than higher in rates, especially out the curve," said George Goncalves, head of fixed income strategy at Cantor Fitzgerald in New York. Bonds have rallied in seven of the last eight weeks, creating a challenge for auctions in a market that appears expensive.
But bonds still benefit from investors eager to secure yields in an uncertain economic environment. "There is so much money that needs to be invested that as innately bearish as I am on the Treasury market, I think this hoard of cash is going to keep a bid in for some time," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.
Analysts offer varying ideas on the sources of the "hoard of cash" in search of Treasury yields, including money still sitting in cash after last year's financial markets meltdown. Supporting that view was money market fund data. On Wednesday, the Money Fund Report said cash in US money markets fell by $17.4 billion to $3.4 trillion in the week to October 6.
Some analysts say a sizable influx of cash may also be coming from aging baby boomers switching from relatively risky stock investments to the perceived certainty of fixed-income yields. In other trade, two-year Treasury notes traded 3/32 higher in price to yield 0.87 percent, down from 0.91 percent late on Tuesday.