US Treasury debt prices slid on Tuesday, driving benchmark yields to a month high as investors turned to riskier assets in hopes that global policymakers will act to help resolve the euro zone's ongoing debt crisis. Investors also pushed down prices ahead of two US debt sales later in the week, part of quarterly refunding operations.
The Treasury concluded one debt sale on Tuesday, auctioning $32 billion of three-year notes at a high yield of 0.37 percent, higher than the 0.366 percent at auction in July. While the sale probably had a "bearish spin," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut, the market is nonetheless subdued.
"People don't have positions. They can safely sit on their hands," Ader said. "Volumes overall are characteristically moderate." Investors instead bought riskier assets such as equities on Tuesday. US stocks rose for a third day in a row, taking the S&P 500 above the psychologically key 1,400 level, though volume was light. Global markets have enjoyed a strong run this week after the European Central Bank indicated it may start buying government bonds again to ease the pressure on Spain and Italy, albeit under strict conditions that have yet to be fully worked out.
In addition, investors could be setting up for a $24 billion sale of 10-year notes on Wednesday and a $16 billion sale of 30-year bonds on Thursday. Typically, investors will try to undermine Treasuries prices going into such auctions. Safe-haven demand for US debt could persist later in the week nonetheless, as the situation in Spain may have to deteriorate and borrowing costs rise further before the country seeks aid, opening the door to European Central Bank intervention, according to some analysts.
US benchmark 10-year Treasury notes were trading 18/32 lower in price to yield 1.627 percent, after earlier in the day hitting the highest level since July 2 and up from 1.56 percent late Monday. "If you get some stability here around the 1.63-1.65 level that should bring in some more buying," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee. "But that's a big if."
The move lower in price had yields nearing some important technical levels, said MacNeil Curry, chief rates and currency technical strategist at Bank of America Merrill Lynch in New York. Key support levels are under pressure or giving way across much of the Treasury curve, Curry said, adding that the 1.67 percent level was key for the 10-year note. "This level is critical as it defines the medium-term bull trend. Indeed, a sustained break through would indicate an end to the four-month bull trend opening the 200-day (moving average) at 1.88 percent and potentially beyond," he said.
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