US Treasury prices rose on Tuesday as a recent spike in yields attracted bargain-hunters and renewed worries of Greece's fiscal problems rekindled a safety bid for bonds. Solid demand at a $40 billion three-year note auction and benign minutes from the Federal Reserve's March policy meeting helped stabilise yields which had jumped on bets on an improving US economy, analysts said.
"These are some juicier yields than where they had been. We also got bailed out overnight on the Greece story," said Thomas Roth, executive director in US government bond trading at Mitsubishi UFJ Securities USA in New York. Treasuries received a safe-haven bid after investors moved out of euro-denominated assets on reports Greece wanted to amend an EU-IMF safety net. Greek officials denied they intended to renegotiate the deal.
The yield on the benchmark 10-year Treasury note was 3.96 percent, down 3 basis points from Monday when it touched a 17-1/2 month high of 4.013 percent. Ten-year yields have risen about 37 basis points since the start of February. These higher yields, while sparking some investor demand, have stoked worries they could inflate key borrowing costs such as mortgage rates and curb the pace of economic recovery if they rise too quickly.
A rebound in the Treasury market also spurred demand for long-dated fixed-rate payments, resulting in the rate on 10-year interest rate swaps to invert versus the 10-year Treasury yield, analysts said. The spread, or the differential between the 10-year swap rate and 10-year note yield, was last quoted at minus 2.00 basis points from plus 3.00 basis points late Monday.
The 10-year swap rate inversion occurred for the first time ever two weeks ago amid an unwinding of bad bets and hedging of corporate supply. Tuesday's sale of three-year notes was encouraging to investors who are worried whether traders and central banks are tired of owning US government debt. "I think it was a good auction. Higher yields brought out the value investors," said George Goncalves, head of US interest rate strategy with Nomura Securities International in New York.
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