U.S. Treasurys Rise Despite Weak Auction, Strong Data
May 09, 2011
U.S. Treasurys rebounded from several days of losses Tuesday despite disappointing auction results and a stronger-than-expected economic report. The price of the benchmark 30-year bond was up 10/32, or nearly $3.75 for a bond with a face value of $1,000, at 97 1/8 in late trading. The yield, which moves in the opposite direction from the price, slipped to 6.96% from just below 7% late Monday. The monthly two-year note auction was the main event this session. The $18.75 billion offering was met with below-average demand at a bid-to-cover ratio of 2.23. That's well below the average 2.42 bid-to-cover seen at the previous dozen two-year auctions. The bid-to-cover ratio measures demand by comparing bids received with those accepted. Noncompetitive bids, meanwhile, amounted to $1.52 billion, above the average $1.02 billion. Noncompetitive bids typically represent those from investors outside the Wall Street community. Traders said demand at the auction may have been weak because the yield was well below the 6.288% from last month's two-year note auction. Given concerns over stronger-than-expected economic indicators and the possibility of a Federal Reserve tightening in September, a 6.17% yield may have been too low, traders said. The fact that this month's two-and five-year note auctions come in the week ahead of key data releases, including the monthly employment report, ``is making it more difficult,'' said Antoinette Glidewell, director of fixed income at Miller, Tabak, Hirsch & Co. ``Accounts are bidding on paper that, in a week or two, may be under water.'' Observers cautioned that the results of the two-year auction can't be used as an indicator of the success of Wednesday's five-year note auction. But, they noted that uncertainty surrounding the economy and the absence of many players during the height of the summer vacation season present obstacles. On Wednesday, the Treasury will sell $12.5 billion of five-year notes. The when-issued five-year note was bid late Tuesday at 6.54%, off from 6.57% late Monday. Earlier in the session, Treasurys slipped after the Conference Board reported a jump in the August consumer confidence index to 109.4 from 107.0 in July. The August reading was the highest in six years. In addition, the Redbook Research weekly indicator of national retail sales showed a 0.9% rise in the first three weeks of August from July. Although the long bond managed to find buyers Tuesday whenever the yield approached 7%, observers said next week's batch of indicators will probably determine whether that psychologically important level becomes a ceiling or floor for the market. Friday's release of the Chicago Purchasing Management Association's August index will set the stage for the national survey, due next Tuesday. That will be followed by the August employment report on Friday. The persistently low level of jobless claims in recent weeks has prompted concern that employment figures for August will be strong, traders said. In other credit markets: In the corporate bond market, yield spreads on Conseco's debt tightened, while two banks sold the day's only offerings. A $2.9 billion Texas issue in the municipal bond market sparked records for the most bids drawn and the highest number of winning bidders. Mortgage-backed securities edged higher as dealers struggled to unload new supply amid a lack of investor interest.
