Treasuries decline

With a global rebound in stocks halting the strong flow of capital into fixed income, traders in the US Treasury market found room on Wednesday to set up for the day's 10-year auction by selling longer-dated Treasuries. Prices of seven-year and 10-year notes and 30-year bonds fell slightly in robust trading. The Treasury Department is planning to sell $21 billion in reopened 10-year notes at 1 pm (1700 GMT).
The 10-year yield, which had traded as low as 2.36 percent on Tuesday, had risen to 2.45 percent, a level at which it had been lodged for several days before data on job losses in September spurred a Treasury rally late last week. The 2.45 percent yield is considered significant by Treasury strategists, and may help draw a bid at the 10-year auction, but Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut, said yields could go even higher before the sale. Volume on Wednesday morning was 116 percent of the 10-day moving average, according to Lyngen.
John Spinello, Treasury bond strategist at Jefferies & Co in New York, said his firm had seen no buying overnight and he did not expect heavy participation by foreign buyers in the 10-year auction. The 30-year bond traded 18/32 lower in price to yield 3.86 percent, up from 3.81 percent late on Tuesday. Prices along the Treasury curve are still displaying the effects of speculation that the Federal Reserve will begin another program to purchase Treasuries and try to stimulate the economy. If the Fed does launch such a program, it will likely buy Treasuries with maturities ranging from five to 10 years. Traders therefore are willing to bet that middle-dated debt yields will fall further. But there is no corresponding chance of a buyer like the Fed suddenly snapping up long bonds.
That sentiment was widening the spread between 10-year yields and 30-year yields on Wednesday. It registered at 140 basis points. The Treasury will auction $13 billion of reopened 30-year bonds on Thursday. Three-year notes traded 2/32 lower in price to yield 0.58 percent, up from 0.56 percent late on Tuesday. The two-year Treasury note's yield, which dipped to a new record low of 0.34 percent on Tuesday, was 0.37 percent on Wednesday.