Bargain hunting lifts U.S. Treasury prices after sell-off

By Emily Flitter

LONDON (BestGrowthStock) – The prices of U.S. Treasury securities rose on Wednesday as buyers in Tokyo and the Mideast stepped in following a sell-off sparked by a poor auction of five-year notes.

Volume during London trading hours remained thin, despite the return of London’s financial community after a two-day bank holiday.

A trader at an investment bank in London said he had seen buyers of off-the-run 10-year Treasury notes in Tokyo and buyers of two-year and five-year notes in the Middle East. He said volume in the market was nearly as thin as it had been during the London holiday, which meant what little buying there was had been enough to lift prices significantly.

The 10-year Treasury note yield fell to 3.44 percent in London after hitting a high of 3.495 percent late in Tuesday’s New York trading session.

Strong selling began after Tuesday’s $35 billion five-year note auction, which was considered to have gone poorly. Bidders demanded a yield at the auction that was significantly higher than the yield at which comparable securities were trading simultaneously in the open market.

The five-year auction was the second this week. A $29 billion sale of seven-year notes is set for 1800 GMT (1 p.m. EST). The London-based trader said it was too early to tell whether a concession would build in the market for the seven-year auction.

“If there’s going to be a concession in the sevens you’ve got all day to do that,” he said. “But it’s not the London traders’ priority.”

The seven-year note’s yield fell to 2.84 percent. That is already well above the yield the seven-year note fetched at its last auction, late in November. It was sold then at a yield of 2.25 percent.

James Knightley, senior economist at ING in London, said he saw a general upward trend in Treasury yields continuing into 2011.

“The beginning of 2011 is going to be a particularly tough environment for the U.S. bond market,” Knightley said. “The risk environment is favoring the equity market in general.”

At 1045 GMT, the two-year note’s price was up, with a yield of 0.724 percent.

(Editing by Ruth Pitchford)

Bargain hunting lifts U.S. Treasury prices after sell-off