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Treasuries up on solid auction

February 07, 2007 | Financial Times

US Treasuries rose after a well-received sale of new debt on Tuesday, the start of the Treasury’s quarterly refunding.

The sale of $16bn of three-year notes attracted heavy interest and the scale of non-dealer buyers was a healthy 32.3 per cent.

It was the smallest three-year auction since the late 1990s. The note could face elimination from the Treasury’s funding plans.

William O’Donnell, strategist at UBS, said: “The continued build in Treasury tax receipts certainly keeps the three-year note on the hot seat for elimination after the May refunding.”

New US government borrowing continues today with an auction of $13bn of 10-year notes, with $9bn of 30-year notes tomorrow.

There was little other economic news and Ben Bernanke, Federal Reserve chairman, avoided interest rates or the economy in a speech.

By late afternoon in New York, 10-year bonds were yielding 3.7 basis points less at 4.774 per cent. The two-year note yield was 2.1bp lower at 4.904 per cent.

In the UK, gilts ended almost flat after the benefits of strong demand in an auction of 40-year debt were counteracted by better-than-expected retail sales data. The Bank of England is expected to hold interest rates steady on Thursday but some see room for another surprise increase.

The two-year gilt yield was up 0.2bp at 5.526 per cent, while the 10-year was 0.3bp lower at 4.987 per cent.

Eurozone government bonds were mixed ahead of the European Central Bank’s rate decision tomorrow, which is also expected to be a hold. The yield on the two-year Schatz was 1.2bp higher at 3.905 per cent, while that on the 10-year Bund was down 0.9bp at 4.027 per cent.

A sale of inflation-linked Japanese government bonds attracted low interest, hit by low inflation expectations for the economy in the coming months. The finance ministry’s Y500bn sale of 10-year debt linked to the consumer price index saw demand a little above three times more than supply. This compared with a ratio of almost five to one in December’s auction.

The yield on the benchmark 10-year bond rose 3bp to 1.745 per cent.


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