US benchmark Treasuries yields were set to close higher for the first time in five sessions on Wednesday after weak demand at a five-year note auction underscored concern about Federal Reserve rate hikes and strong housing data undercut safe-haven bids.
Overall bidding at the US Treasury's auction of $35 billion in five-year notes, as measured by the bid-to-cover ratio, was at 2.56, the lowest since last December. Analysts said traders shied away from buying given the Fed's latest rate projections, which showed a faster pace of rate increases than previously anticipated.
"The belly of the curve is behaving as though the Fed hike is getting closer," said David Keeble, global head of interest rates strategy at Credit Agricole in New York. He said commercial bank demand had "evaporated." Fears that the Fed's interest rate projections could materialise persisted despite dovish comments from Chicago Federal Reserve Bank President Charles Evans, who said Wednesday the central bank should be "exceptionally patient" in removing monetary policy accommodation.
Traders awaited the Treasury's auction of $29 billion in seven-year notes, scheduled for Thursday. That added to selling pressure as traders sold some debt in anticipation of buying it back at cheaper prices. Data showing strength in the US housing market stymied safe-haven bids for Treasuries. The Commerce Department said US new home sales jumped 18.0 percent to a seasonally adjusted annual rate of 504,000 units in August. That was the highest level since May 2008 and beat economists' expectations for a 430,000 rise, according to a Reuters poll. Analysts said Treasuries were also more sensitive to a push higher in yields given light volumes ahead of the Rosh Hashanah Jewish holidays, which begin at sundown Wednesday.
"This is less about profit-taking than a lack of buying," said David Ader, head of government bond strategy at CRT Capital in Stamford, Connecticut. "A number of people are sort of rushing out the door." Wednesday's rise in yields was limited, however, and benchmark 10-year Treasury yields remained much lower than a session high yield of 2.66 percent on September 19, which was the highest in over two months.
US 10-year Treasury notes were last down 9/32 in price to yield 2.57 percent, from a yield of 2.53 percent late Tuesday. US 30-year Treasury bonds were last down 17/32 to yield 3.28 percent, from a yield of 3.25 percent late Tuesday. US five-year notes were last down 5/32 to yield 1.80 percent, from a yield of 1.76 percent late Tuesday. On Wall Street, US stocks rose, led by healthcare stocks. The Standard & Poor's 500 index rose 0.81 percent in late trading.
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