Intermediate-dated US Treasuries rose in price on Thursday after European Central Bank President Jean-Claude Trichet said the ECB's decision to raise benchmark interest rates would not necessarily be the first in a series. Longer-dated government debt eased, in a move that could see some follow-through in coming days if benchmark yields break through price support.
Thirty-year bonds fell for a third day in worries over rising inflation fuelled by soaring oil prices, and in the set-up to next week's debt auctions. Treasuries were lent some safe-haven support by news of a major aftershock in north-east Japan, where a tsunami warning was issued. The warning was later lifted and no tsunami was reported.
The ECB raised rates by a quarter of a percentage point to 1.25 percent, the first increase since the financial crisis in 2008. But Trichet said a series of hikes is not necessarily in the cards. "Trichet's comments led the market to believe that a further rate hike was not completely on the table, or at least he did not indicate that this is the first in a string of many (rate increases)," said Marty Mitchell, chief market technician at Stifel Nicolaus in Baltimore.
Longer-dated Treasuries had sold off early in the day heading into the Treasury's announcement of the sizes of next week's debt auctions. They then pared some of those losses after the Treasury said it would sell $66 billion of three-year notes, reopened 10-year notes and reopened 30-year bonds, which were expected. "The curve flattened into the two-year, five-year and seven-year auctions two weeks ago and now we are starting to steepen into next week's supply, which includes tens and thirties," Mitchell said.
Thirty-year Treasury bonds traded 15/32 lower in price to yield 4.62 percent. The Treasury curve steepened, with the gap between two-year note yields and 30-year bond yields moving out to 383 basis points, marking its widest since March 17, from 376 basis points on Wednesday. Benchmark 10-year note yields last traded at 3.56 percent, little changed from Wednesday, after earlier testing support in a band from around 3.56 percent to 3.60 percent. Five-year notes traded 6/32 higher in price to yield 2.28 percent, down from 2.32 percent late on Wednesday, while seven-year notes rose 4/32 to yield 2.97 percent from 2.99 percent.