US debt prices plunged on Thursday amid worries that coming Treasury auctions could draw less demand after a poorly received $13 billion sale of inflation-protected Treasuries. The sale on Thursday of 10-year Treasury Inflation-Protected Securities, or TIPS, sent debt prices further downward, with 10-year notes briefly falling a full point.
Thirty-year bond yields briefly hit a technically important support level at 4.63 percent, the highest since April. "All the primary dealers bought more in the TIPS auction than they thought they were going to buy and they've got to hedge their interest rate risk somehow, so they're selling Treasuries," said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.
The high yield at the TIPS auction was 1.17 percent, between 5 and 6 basis points higher than the yield at which comparable securities were trading simultaneously in the open market, a sign of weak demand.
As a rule, TIPS performance in the Treasury market has had an inverse relationship to the performance of nominal Treasuries. But the Treasury Department has recently increased the size of its TIPS issuance, so a poor TIPS auction portends similar troubles for nominal Treasury auctions.
"Looking forward, today's result may have some investors concerned about the 30 year supply, which is scheduled to be announced in three weeks," wrote George Goncalves, head of US rates strategy at Nomura Securities in New York, in a note to clients.
The Treasury Department said on Thursday it would sell a combined $99 billion in two-year, five-year and seven-year debt next week. This total is unchanged from December, which consisted of $35 billion in two-year notes; $35 billion in five-year debt and $29 billion in seven-year notes.
Companies are expected to issue $20 billion to $25 billion in debt this week. They are on track to sell more than $75 billion this month, which would be a record in January, according to IFR, a unit of Thomson Reuters. Brazil's state-oil company Petrobras is to sell $6 billion worth of bonds, Thursday's largest bond offering.
Dealers lock the yields on the US benchmark 10-year Treasury notes last traded down 30/32 in price after briefly falling a full point, to yield 3.46 percent versus Thursday's 3.35 percent. The 10-year yield breached minor chart support in the 3.38 percent area. If the selloff continues, it could test a major level at 3.49-3.50 percent, which is the upper end of its trading range since mid-December.
The 30-year bond shed 1-8/32 points in price to yield 4.62 percent, a level identified by technical analysts as a support point, which means the 30-year yield is likely to go even higher in the near future. The seven-year note was the day's worst performer, its yield up 9 basis points.
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