Long-dated US Treasuries prices rallied on Tuesday, with the 30-year bond posting its biggest one-day jump in eight months, after President Barack Obama reported progress in talks to raise the US debt ceiling.
Worries about a default had hurt the 30-year US Treasury bond on Monday, but losses reversed on Tuesday and the bond then climbed further after Obama reported progress in bipartisan talks to raise the US debt ceiling and take action to reduce the deficit.
The 30-year US Treasury bond was up 2-7/32 in mid-afternoon trade, its yield falling to 4.18 percent from 4.31 percent late on Monday. Benchmark US 10-year notes rose 15/32, their yields falling to 2.88 percent from 2.93 percent on Monday.
Traders pushed long bonds higher because "they think there's some progress being made on the bipartisan agreement," said BNP Paribas' managing director of Treasury trading, Rick Klingman.
Obama said he and a group of congressional leaders known as the "Gang of Six" are on the "same playing field" on debt and deficits, though further work was needed. Obama said he would call House of Representative Speaker John Boehner to schedule further talks.
On Monday, traders shorted the 30-year bond, resulting in a loss that made it stick out "like a sore thumb" on the yield curve when shorter maturities were little changed, said Richard Gilhooly, TD Securities interest-rate strategist in New York.
The bipartisan group's plan for $3.75 trillion in savings over 10 years would exceed market expectations, said RBS Securities Treasury strategist John Briggs in Stamford, Connecticut. Thinly traded markets exaggerated the reaction to Obama's remarks.
Option volume in the iShares Barclays 20+ Treasury Bond fund was heavily skewed in favour of call activity. The exchange-traded fund tracks the long end of the Treasury yield curve and an investor buying calls is expecting yields to fall and prices to rise.
Option volume was more than four times usual daily levels, with 118,000 calls and just 13,000 puts through near the close of trading, according to options analytics firm Trade Alert.
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