Prices for longer-dated US Treasuries dropped on Tuesday as investors extended a selloff after last week's rally and before debt auctions later in the week but an undercurrent of worries about the global economy tempered losses. An auction of $32 billion in three-year debt by the US Treasury proved soft on Tuesday, with a weak bid-to-cover ratio and indirect takedown.
"The small buyside takedown suggests to us that demand for the three-year note is not all that huge at the moment," said Thomas Simons, a money market economist at Jefferies & Co Thirty-year bonds fell 14/32 in price to yield 2.932 percent late on Tuesday.
Those bonds rallied last week as data pointed to continued struggles in the US economy, culminating with sharply disappointing jobs data on Friday that saw benchmark yields hit their lowest so far this year. That run-up went too far for some, said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco. That could dampen demand at an auction of $13 billion in 30-year bonds on Thursday.
Ten-year notes traded off 1/32 to yield 1.747 percent ahead of Wednesday's auction of $21 billion in 10-year notes. Also supporting Treasuries, the Federal reserve bought $1.57 billion in government bonds that mature in February 2037 to February 2043, part of efforts to buoy the economy and reduce unemployment. This widening of the 30-year spread has been fuelled by speculation that some dealers must close out 30-year swaps, which they use to hedge investments known as power reverse dual currency notes (PRDC) they sold to investors.