US Treasuries prices tumbled on Wednesday as investors switched out of safer haven government securities into stocks on hopes for an economic recovery plan, the costs of which could pummel the government bond market. On the first full day of the Obama administration, prospects for government stimulus measures and bank bailouts weighed on Treasuries because their cost would boost the supply of US government debt.
Ultimately, any success in stabilising the weakened economy could trigger more flows into corporate bonds and stocks, further paring demand for government paper. "Right now, higher equities and the supply factor are winning" and driving Treasury prices lower, said Mary Ann Hurley, senior Treasuries trader in Seattle at brokerage D.A. Davidson.
Longer maturities, which are viewed as especially susceptible to the sustained rise of government debt issuance, were most badly battered. The 30-year Treasury bond's yield, which moves inversely to its price, rose above 3.17 percent to the highest level since mid-December, sending the price down about 4 full points.
"There's a realisation that supply is definitely going to be a factor going forward. When they talk about these bank bailouts and the stimulus, people are wondering how large these (Treasury) auctions are going to get," said William Larkin, portfolio manager with Cabot Money Management in Salem, Massachusetts.
Over the next year alone, analysts expect the US government to issue some $2 trillion of Treasuries to add to the $5.8 trillion of government bonds outstanding. The price of the benchmark 10-year Treasury note, which moves inversely to its yield, fell 1-13/32, for a yield of 2.53 percent, versus 2.38 percent on Tuesday, nearly 50 basis points above the five-decade low yield of 2.04 percent that the 10-year note hit on December 18. The two-year note slipped 4/32 in price for a yield of 0.77 percent versus 0.71 percent on Tuesday.