TREASURIES-Bonds sag as corporate debt supply weighs

* U.S. government debt loses ground for 3rd straight day

* Long-dated yields touch highest levels in about a month

* Small banks, investors look to riskier assets for income
(Updates market action, adds quote)

By Richard Leong

NEW YORK, Sept 10 (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 (US10YT=RR: ) 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 (US30YT=RR: ) 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 (US30YT=RR: ) 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 Aug. 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.
[ID:nCAT005328]
(Additional reporting by Burton Frierson; Editing by Kenneth
Barry)

TREASURIES-Bonds sag as corporate debt supply weighs