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Treasuries mixed before sale

January 25, 2007 | Financial Times

US Treasuries were mixed in range-bound trade on Wednesday, after a smooth $20bn auction of two-year notes and ahead of data on existing and new home sales due on Thursday and Friday.

The two-year auction was the second of three Treasury debt sales this week, coming a day after an $8bn sale of 20-year Treasury inflation-protected securities that met with strong investor demand. The Treasury department will sell $13bn in five-year securities on Thursday.

The new two-year notes were sold at a yield of 4.93 per cent and attracted reasonable interest said dealers.

By late afternoon in New York, the yield on the current two-year note was 2.1 basis points lower at 4.933 per cent.

The 10-year note fell slightly, with yields 0.6bp higher at 4.816 per cent.

Shorter-dated UK gilts rallied as investors found comfort from the minutes of the last rate-setting meeting of the Bank of England.

Members voted by a margin of 5-4 to raise UK interest rates to 5.25 per cent, a much closer margin than many people had expected.

In late trading, the yield on the two-year gilt was down 4.5bp to 5.454 per cent. However, 10-year gilts were trading lower, partly fuelled by bearish sentiment in the eurozone. The yield on the 10-year gilt was up 1.2bp to 4.912 per cent.

Poor demand at a sale of 30-year German Bunds set the tone in the eurozone government bond market. The yield on the 10-year Bund was up 1.4bp to 4.038 per cent while the two-year Schatz yield edged up 0.8bp to 3.951 per cent.

A sale of ?6bn of new bonds due in 2039 received bids of only ?5.885bn.

The official bid-to-cover ratio was 1.2 times, after the Bundesbank bought more than ?1bn for market-smoothing purposes.

Japanese government bonds enjoyed a second sedate day after the sharp movements that followed the Bank of Japan’s decision on Thursday to keep interest rates on hold.

Traders were wary of taking aggressive positions ahead of Thursday’s export numbers and Friday’s inflation figures. The yield on the 10-year closed unchanged at 1.665 per cent.


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