Current yields may spur auction interest

By Chris Reese

NEW YORK (Reuters) – Longer-dated Treasury debt yields have recently backed up enough to perhaps stoke investors appetite for $66 billion of debt to be auctioned next week, analysts said on Friday.

A government shutdown due to a lack of a budget deal would mean no economic data would be released however, which could leave a bit of an information vacuum that could damp interest in the debt sales.

The Treasury will sell $32 billion of three-year notes on Tuesday, $21 billion of reopened 10-year notes on Wednesday and $13 billion of reopened 30-year bonds on Thursday.

“We have worked some reasonable discount into yields ahead of the supply,” said Chris Ahrens, interest rate strategist at UBS Securities in Stamford, Connecticut.

Ahrens added however the auction results will depend on “how the budget negotiations play out, the performance of the equities market and how the data falls next week to see whether we are going to get this stuff underwritten or whether we are going to have to work our way to the early February highs in yields to find the support.”

Thirty-year Treasury bond yields have risen some 16 basis points since the beginning of the week to trade at 4.64 percent on Friday. Bond yields traded as high as 4.68 percent on Friday, marking the loftiest since March 9.

If the government shuts down then key data on March retail sales, producer prices and consumer prices would not be released as scheduled on Wednesday, Thursday and Friday respectively.

Without the retail sales and producer price data, investors might be reluctant to jump in on the auctions.

“It will make it more difficult to make economic decisions because there will be no economic data,” Ahrens said.

If the government does manage to reach a budget deal and continue business as usual, the consumer price index for March, to be released on Friday, will be very closely followed as soaring oil prices have fueled worries over inflation.

Some Federal Reserve officials have recently been more vocal about inflation concerns, and that, combined with an interest rate hike from the European Central Bank this week, has some investors wondering whether the U.S. central bank might perhaps raise rates sooner than originally expected.

“With the April Fed meeting just two weeks away, the tone of the FOMC statement, as well as the newly-implemented, postmeeting press conference with the Chairman, could clearly be impacted by the upcoming data — particularly if the inflation news is as robust as we forecast,” said Carl Riccadonna, senior U.S. economist at Deutsche Bank in New York.

The median of forecasts from analysts polled by Reuters is for headline consumer prices to have increased by 0.5 percent last month from a 0.5 percent increase the month previous, while core CPI, which does not include food or energy prices, are expected to have risen by 0.2 percent rise from a 0.2 percent rise in February.

(Editing by Chris Reese: )

Current yields may spur auction interest