TREASURIES-30-year leads prices lower in auction concession

* 30-year bond yield climbs above 200-day moving average

* Investors worry over inflation implications of QE2

* Spread between 10- and 30-yr yields revisits record wide

(Adds analysts’ quotes, updates prices)

By Chris Reese

NEW YORK, Nov 9 (BestGrowthStock) – U.S. Treasury debt prices fell
on Tuesday, with 30-year bonds leading the way as investors
worked to undercut prices ahead of an auction of $16 billion of
the longer-dated securities on Wednesday.

Prices were also being pulled lower by some fretting over
the eventual inflation implications of the Federal Reserve’s
latest round of asset purchases, which are intended to prop up
the U.S. economy.

The fall in prices pushed the 30-year bond yield above its
200-day moving average of 4.20 percent for the first time since
May, possibly signaling a longer-term bearish trend for the
bonds.

In the aftermath of an auction of $24 billion of 10-year
Treasury notes, 30-year bonds (US30YT=RR: ) were trading 1-28/32
lower in price with the yield climbing to 4.24 percent, above
the 200-day moving average and up from 4.12 percent late on
Monday. The bond briefly traded two points lower in price on
Tuesday afternoon.

“The 30-year is cheapening before the auction. That’s the
theme of the week,” said Keith Blackwell, interest rate
strategist at RBC Capital Markets in New York.

The Treasury is auctioning $72 billion of three-year,
10-year and 30-year government securities this week to meet its
quarterly refunding needs. An auction of three-year notes on
Monday was met with solid demand, while 10-year notes on
Tuesday sold with a lower yield than was expected, indicating
some aggressive bidding for the notes.

But analysts were not quite as optimistic on the outlook
for the 30-year sale on Wednesday.

The Fed has said it will concentrate buying on
shorter-to-medium dated securities under its latest
quantitative easing program — dubbed QE2. Thirty-year yields
have been pushed higher by expectations of lean demand.

Investors are also worried the central bank’s asset
purchases could eventually lead to price inflation, which would
hurt the long-bond more as inflation erodes Treasury debt
values over time.

“The 30-year is really the step child of QE2,” said Kim
Rupert, managing director of global fixed income analysis at
Action Economics in San Francisco, adding “I think tomorrow’s
auction will be hard-pressed to do well — there are concerns
over the Fed’s inflation policy.”

Benchmark 10-year Treasury notes (US10YT=RR: ) were trading
24/32 lower in price to yield 2.64 percent, up from 2.55
percent late on Monday.

The price move pushed the spread between yields on 10-year
notes and 30-year bonds to 159 basis points, a record level
also reached on Monday.
(Additional reporting by Richard Leong and Emily Flitter;
Editing by Andrew Hay)

TREASURIES-30-year leads prices lower in auction concession