US Treasury debt prices were little changed on Thursday after a surprisingly weak auction of inflation-protected debt undermined safe-haven demand spurred by data pointing to tepid global economic growth. Treasuries pared early price gains after an auction of $13 billion of 10-year Treasury inflation-protected securities was met with the lowest bid-to-cover ratio since April 2009, indicating sluggish demand for the securities.
"It is surprising, you would think there would be a good bid, especially if you think inflation is going to be a problem down the line," said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson & Co in Seattle. Bonds sold off sharply last week on inflation worries tied to the announcement of more economic stimulus from the US Federal Reserve. Treasuries climbed early on Thursday after disappointing figures on US jobless claims, along with poor economic data from Asia and Europe, reinforced the view of slow global growth and boosted the safe-haven allure of US government debt.
Following the 10-year TIPS auction, however, benchmark 10-year Treasury notes traded 1/32 lower in price with their yields little changed from late Wednesday at 1.77 percent. The 30-year bond traded 4/32 higher in price to yield 2.95 percent, from 2.96 percent late Wednesday.
Treasuries prices have risen this week, with yields approaching levels seen last week before the US central bank's announcement that it would embark on a third round of large-scale bond purchases, dubbed QE3, in an attempt to reduce unemployment. Top Fed officials this week also raised expectations that the US central bank might buy even more Treasuries down the road in addition to program announced last week, which involved purchases of mortgage-backed securities. "The Fed feels like they have to do more," said Matt Duch, portfolio manager at Calvert Investment Management in Bethesda, Maryland, which oversees about $12 billion in assets.
The president of the New York Fed, William Dudley, and Chicago Fed President Charles Evans said in separate public appearances earlier this week that the US central bank might consider more stimulus if the economy needs it. The president of the Atlanta Fed, Dennis Lockhart, downplayed the risk of inflation from the Fed buying more bonds.
And a Fed official know for his hawkish stance, Minneapolis Fed chief Narayana Kocherlakota, pitched a bold and perhaps surprising proposal on Thursday to keep interest rates low until the US unemployment rate drops to 5.5 percent, as long as there's no pick-up in inflation. Data on Thursday showed US jobless claims fell last week, but economists considered the overall level in claims an indication that the labour market is still too weak to bring down the jobless rate, which stood at 8.1 percent in August.