US Treasury yields edged higher on Wednesday with the yield curve close to its flattest level in a decade, as investors reduced their existing bond holdings to make room for this week's government and corporate bond supply. Demand for new issues have been solid, led by $23 billion of US benchmark 10-year Treasury notes, the second part of the November quarterly refunding worth $64 billion.
Healthy appetite for longer-dated debt underscored traders' preference for them over shorter-dated issues over the past week and a half, as they brace for further rate increases from the Federal Reserve while expecting domestic inflation to hold below the Fed's 2-percent target, analysts said. Uncertainty about whether Republicans in US Congress will pass tax cuts and other changes to federal tax code have made such "curve-flattener" trades more appealing, they said, as have diminished chances the government will introduce a Treasury bond that matures beyond 30 years.
While keen demand for longer-dated Treasuries raised concerns that this week's 10-year and 30-year supply may be pricy, Wednesday's auction results signalled investors were willing accept 10-year yields hovering near three-week lows. The ratio of bids to the amount of 10-year notes offered, a proxy on overall auction demand, was 2.48, which was above its 12-month average.
The Treasury Department will complete its November refunding with a $15 billion auction of 30-year bonds at 1 pm (1800 GMT) on Thursday. Meanwhile, companies have raised more than $24 billion in investment-grade bonds so far this week, according to IFR, a Thomson Reuters unit. On the open market, the 10-year Treasury note yield rose 2.0 basis points at 2.327 percent after touching a near three-week trough of 2.304 percent earlier Wednesday.
The 30-year bond yield hovered at a near six-week low reached on Tuesday. It was up 1.6 basis point at 2.786 percent in late US trading. The two-year yield increased 1.6 basis points to 1.645 percent. The yield spread between two-year and 10-year Treasuries was 68.0 basis points. Earlier in the session it contracted to 66.7 basis points, the tightest since November 2007, Reuters data showed.