Treasury debt prices retreat

US Treasury debt prices slumped on Wednesday, after Treasury Secretary Steven Mnuchin backed a weaker dollar to help boost America's global trade, breaking from the traditional strong currency policy of past administrations. US 30-year bond yields, which move inversely to prices, rose to their highest in more than three months, while those on 10-year and 2-year notes touched session highs.
On the eve of US President Donald Trump's speech at the World Economic Forum in Davos, Switzerland, Mnuchin said a weakening of the dollar benefits the United States. The dollar, already under pressure the last few months, tumbled on his comments. Central banks aside from the Federal Reserve, such as the European Central Bank, have moved to normalize their monetary policies, boosting their currencies at the expense of the dollar.
Treasuries sold off on Wednesday in tandem with the dollar following Mnuchin's remarks. "If that intentional policy from the administration on the dollar lasts, it might put off some overseas buyers that may be interested in buying Treasuries," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.
To be sure, analysts said Mnuchin was not the only reason Treasuries sold off. Vogel said investors reversed the rally seen in Treasuries on Tuesday after the Bank of Japan kept interest rate targets unchanged and its chief, Governor Haruhiko Kuroda, quashed speculation of a move away from easy monetary policy.
"The impact from the BoJ sort of eroded," Vogel said. In late trading, US 10-year Treasury yields rose to 2.652 percent, from 2.622 percent late on Tuesday.
US 30-year bond yields, meanwhile, hit a 3-1/2-month peak of 2.956 percent and were last at 2.933 percent, up from 2.902 percent on Tuesday. The US Treasury's $34 bln 5-year auction showed mixed results, with the yield coming slightly higher than expected at 2.434 percent, the highest for this debt maturity since April 2010.
Bids totalled $84.4 billion for a 2.48 bid-to-cover ratio, higher than the previous auction's 2.36 and the 2.44 average. Indirect bidders, which include foreign central banks, accepted 65.0 percent, also above December's 58.4 percent. Investors were also awaiting the European Central Bank's policy decision on Thursday and Trump's speech on Friday in Davos.
Reuters reported last week that the ECB was unlikely to ditch their bond-buying pledge at this week's meeting, and would more likely alter guidance at the March meeting which includes updated economic forecasts.
In the case of Trump, the risk is that he comes out in Davos and starts a trade war, said Gennadiy Goldberg, interest rates strategist at TD Securities in New York.