TREASURIES-Strong 2-yr auction gives bid to market

* Treasuries gain, pare losses after strong 2-year auction

* 2-year notes yields price inside pre-auction levels

* 5-, 7-year auctions expected to see good demand
(Adds comments, updates prices)

By Karen Brettell

NEW YORK, Dec 27 (BestGrowthStock) – Longer-dated Treasuries gained
on Monday and shorter-dated notes pared losses after buyers
were drawn in to a $35 billion auction of new two-year notes by
the debt’s relatively higher yields.

The Treasury sold the two-year debt at high yield of 0.74
percent, and median yield of 0.72 percent. For details, see

This level is lower than where the notes had traded before
the action, at yields of 0.73 percent — their highest level
since June. The notes had breached technical support levels at
around 0.69 percent to 0.70 percent.

“Despite a relatively low-volume day, it performed very
well,” said Jim Golden, head of Treasury trading at Jefferies &
Co in New York.

Buyers were attracted to the new issue after days of
weakness, in which the yields backed up to more attractive

“It makes sense that it performed very well because it
cheapened up on an outright basis, it cheapened up on the curve
and the new issue was priced cheap relative to the current
issue,” said Golden.

“On every analytic, it looked attractive. The only question
was whether there were enough people around to actually put
their bids in,” he said.

Two-year notes (US2YT=RR: ) were last down 1/32 in price to
yield 0.69 percent. The notes’ yield has risen from 0.61
percent a week ago.

The U.S. Treasury Department said earlier on Monday that
the auction would proceed after some traders had speculated
that the auctions might be delayed because of winter weather
that has blanketed the Northeastern United States, including
New York, in heavy snow.

The storm has left many trading desks sparsely staffed
while dealers were also seen to be hesitant to take on much new
debt as they close their books for year-end.

“It’s very thin dealing conditions,” said William
O’Donnell, head of U.S. Treasury strategy at RBS Securities in
New York.

The Treasury also plans to sell $35 billion in five-year
notes on Tuesday and $29 billion of seven-year notes on
Wednesday, with both auctions seen likely to be relatively

“The five-year auction should go OK, though the seven-year
might be a little bit harder because it’s a bit richer on the
curve relative to other issues,” said Golden.

Five-year notes (US5YT=RR: ) were last unchanged in price to
yield 2.07 percent, down from earlier yields of 2.15 percent.
U.S. benchmark 10-year Treasury notes (US10YT=RR: ) rose 6/32 in
price, with its yield falling to 3.36 percent, after earlier
rising as high as 3.51 percent.

The Federal Reserve is scheduled to resume its $600 billion
buying program on Tuesday, which may further support the
market. The U.S. central bank will buy between $6 billion and
$8 billion notes due 2013 and 2014.

In another positive sign for Treasuries, recent data showed
that foreign central banks have recently increased their buying
of U.S. government debt, said RBS’ O’Donnell.

Federal Reserve data released on Thursday showed that
overseas central banks’ holdings of Treasury debt rose by
$13.08 billion in the most recent week to stand at $2.625
trillion. [ID:nNLLNNE6QQ]

“That is a developing positive that should help support the
Treasury market ultimately,” O’Donnell added.

TREASURIES-Strong 2-yr auction gives bid to market