US Treasury debt prices rose on Wednesday, pushing benchmark yields to the lowest in seven weeks as worries over the outcome of the eurozone debt crisis underpinned the safe-haven appeal of US government debt. Treasuries shed early losses after an auction of $29 billion of seven-year notes in the afternoon was met with strong demand.
Early in the day, Germany's worst bond auction in the euro era raised concerns the debt crisis was beginning to threaten even the region's benchmark debt issuer. On Tuesday, Spain had to pay a euro-era record of 5.11 percent to sell three-month bills, more than double the rate it paid at an auction in October. A recession in Europe could hurt the US economy since Europe provides a big market for US exports, while an eventual end to the euro could freeze global credit markets.
"Challenges in Europe continue to support Treasuries," said James Sarni, managing principal at Payden & Rygel in Los Angeles. "People are willing to invest in Treasuries despite the low yields because at least they know that six to 12 months from now, their money is safe," he said. Benchmark 10-year notes traded 10/32 higher in price to yield 1.88 percent, marking the lowest yield since October 6 and down from 1.92 percent late Tuesday. Thirty-year bonds gained 1-3/32 to yield 2.83 percent from 2.88 percent late Tuesday.
The market has been advancing for several days as investors fret over the eurozone credit crisis and the survival of Europe's single currency, fleeing higher-risk equities for lower-risk US government debt. Major stock indexes fell for the sixth straight day on Wednesday. Balance of payment data from the European Central Bank reflected investors' nervousness about the eurozone.
The data showed foreign investor demand for German Bunds slowed in the third quarter, reflecting concern about what it will cost Germany to save the euro. In contrast, net buying of safe-haven US Treasuries throughout Europe amounted to $111 billion in the third quarter, up from $15 billion in the previous quarter.
Continued demand for Treasuries could also be seen in the strong reception for the US seven-year notes, which rounded out solid demand for $99 billion of two-year, five-year and seven-year notes from the Treasury this week. "Late bids, and a sense that the money that left Germany came here, got this auction done in spectacular fashion," said William O'Donnell, head of US Treasury strategy at RBS Securities in Stamford, Connecticut. Treasuries traded lower in the morning after government data showed new US claims for unemployment benefits held below 400,000 for the third straight week, suggesting the labour market was gaining some traction.
Stronger economic data pose a challenge to US Treasuries because the prospect of economic growth normally favours riskier assets at the expense of safe-haven US government debt. Treasuries trade volume was thinner than usual ahead of the US Thanksgiving Day holiday on Thursday, when the Treasury debt market will be closed.