US Treasury prices slump

09 Feb, 2008

US government debt prices slumped on Thursday as a dismal $9 billion auction of 30-year US government bonds and a rebound in stocks curbed the bid for safe haven Treasuries. Bonds are seen as expensive after an almost nonstop seven-month rally and long maturities are especially vulnerable given concerns about inflation pressures.
The 30-year bond was on track for its worst daily performance since the Treasury started reissuing that maturity two years ago. "I had been expecting a downtrade following the recent rally and thought that downtrade would begin with supply, because I don't think the levels here are safe enough relative to where inflation is," said Josh Stiles bond strategist and managing director with IDEAglobal in New York.
The $9 billion of 30-year bonds were sold at a bid-to-cover ratio, an indication of demand, of 1.82, below average. Indirect bidders, who include foreign central banks, took around 11 percent of the sale, well below average.
"It wasn't a very good auction and I think it surprised the participants," said Lou Brien, a strategist with DRW Trading Group in Chicago. With low foreign interest and a lighter-than-average bid-to-cover ratio, "this one can be characterised as poor," Brien said.
The 30-year bond's price, which moves inversely to its yield, dropped swiftly after the auction, down 2-14/32 in price for a yield of 4.50 percent, versus 4.36 percent late Wednesday. The bond market also struggled as stocks shrugged off earlier data releases that would normally be supportive of safe-haven fixed income prices.
The Dow Jones industrial average traded up 0.54 percent at 12,265 points. Pending sales of previously owned US homes fell more than expected in December, pointing to more dreary conditions for the beleaguered US housing market.
In the labour market, new applications for US unemployment benefits fell by 22,000 last week, but the number of workers remaining on jobless aid rose to its highest in more than two years, government data showed. The benchmark 10-year Treasury note fell 1-2/32 in price for a yield of 3.74 percent, versus 3.60 percent late Wednesday.

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