Bonds sag as corporate debt supply weighs

By Richard Leong

NEW YORK (BestGrowthStock) – U.S. Treasury prices declined for a third straight session on Friday as investors pared their holdings of safe-haven government debt after a record supply of higher-yielding corporate bonds this week.

Thursday’s poor auction of 30-year Treasury bonds, part of this week’s $67 billion in coupon-bearing government debt, also soured short-term sentiment in the Treasuries market, analysts said.

The market had attempted a comeback in early trading, but the overseas bids from money managers and central banks failed to spur further buying, analysts said.

“There’s still a lot of supply to digest. The 30-year auction was pretty horrible yesterday,” said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.

“It’s been a huge week for corporate issuance, so that sort of took its toll as well. I think the market’s just suffering from some indigestion,” she said.

The benchmark 10-year note fell 16/32 in price for a yield of 3.81 percent, up from 2.76 percent late on Thursday, while the 30-year bond dropped 25/32 to yield 3.88 percent, up from 3.84 percent on Thursday.

Ten-year Treasuries are on track for their third straight weekly rise in yield, a move last seen in October 2009.

“We have spent the week punishingly lower. Without any catalysts today, the propensity is for the market to go lower,” said Guy LeBas, chief fixed income strategist with Janney Montgomery Scott in Philadelphia.

After touching their highest levels in about a month, the yields on 10-year notes and 30-year bonds found technical support at the 2.82 percent and 3.90 percent area, respectively.

The spread between two-year and 10-year yields grew to 2.23 percent points, the widest in a month, as traders reduced their bets on a double-dip recession.

COMPETING SUPPLY

In addition to this week’s public debt supply, companies have issued $34.4 billion in investment-grade bonds so far this week, surpassing the previous record $31.85 billion in the week ended August 6, according to IFR, a Thomson Reuters service.

Investors have snapped up these higher yielding securities on expectations that Treasury yields will likely be stuck near historic low levels and stocks will remain volatile in a tough economic climate, analysts said.

According to Bank of America Merrill Lynch, U.S. investment-grade bonds on average were yielding about 1.90 percentage points over Treasuries midmorning Friday.

Meanwhile, small and community banks have been keen buyers of mortgage securities as they favor investing their money in bonds instead of making loans, analysts said.

Another factor that exerted downward pressure on Treasuries was a drop in investor pessimism, as recent jobs and manufacturing data suggested that the U.S. economy is not slipping back into recession as some traders had bet.

On Friday, the government reported wholesale inventories grew 1.3 percent in July, the biggest monthly increase in two years. This will add to third-quarter gross domestic product, although it would be at the expense of growth later.

(Additional reporting by Burton Frierson; Editing by Kenneth Barry)

Bonds sag as corporate debt supply weighs