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Treasury yields hit five-month high

January 26, 2007 | Financial Times

US Treasuries fell on Thursday, pushing yields to five-month highs as mostly weaker economic data was overshadowed by a lacklustre sale of new five-year paper while investors continued to scale back expectations of interest rate cuts.

The $13bn auction of five-year notes was the third of the week, following sales of $20bn of two-year paper and $8bn of inflation-protected securities on Tuesday and Wednesday.The five-year note auction disappointed, as demand for paper fell to 2.21 times the amount on offer, compared with 2.50 times in December and below the 2.29 average over the past 12 auctions.

“Clearly this auction was one worry too much for investors,” said Ciaran O’Hagan, head of fixed income strategy at SG CIB.

Filings for unemployment benefits rose 36,000 last week, higher than the expected 15,000 rise.The National Association of Realtors reported the annualised pace of sales of existing homes slowed to 6.22m units in December from November’s downwardly revised 6.27m, below forecasts of 6.25m.

By late afternoon in New York, the yield on the 10-year bond was 5.3 basis points higher at 4.867 per cent. The two-year note yield was up 3.7bp at 4.971 per cent.

Eurozone government bonds followed the US market lower. In late trading, the yield on the 10-year Bund rose 5.4bp to 4.082 per cent. The two-year Schatz yield added 1.2bp to 3.966 per cent.

While Germany’s Ifo business confidence survey came in slightly weaker in January, the data did little to damp expectations that the European Central Bank would continue to raise interest rates.

UK gilts were weaker, along with other markets, but technical selling also put pressure on prices. The 10-year gilt yield was 5.1bp higher at 4.964 per cent and the two-year gilt was yielding 5.492 per cent, up 2.8bp.

However, a sale of £625m of 50-year inflation-linked gilts received good demand, attracting orders for 2.42 times the amount on offer.

Japanese government bond prices were calm in spite of a very hawkish comment from a Bank of Japan policy board member. The yield on the 10-year bond fell 1bp to 1.655 per cent.


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