Treasury prices slip, but 30-year bond suffers less

By Ellen Freilich

NEW YORK (BestGrowthStock) – Treasuries slipped on Monday as traders cut prices on supply, but the 30-year bond suffered less than shorter-term securities as traders finally saw some relative value in the long-term bond.

Early in the session, the U.S. Treasury yield curve steepened to record levels as investors, mindful that the Federal Reserve planned few purchases of the Treasury’s longest maturity, shunned the 30-year bond.

But profit-taking on the curve steepening trade eventually let losses on longer-dated debt prices shrink, slightly narrowing the gap between 10- and 30-year yields.

Prices were cut modestly across the maturity range, however, both before and after the U.S. Treasury sold three-year notes at 1 p.m. (1800 GMT), the first of three note auctions scheduled this week.

The $32 billion auction drew a good bid, as expected.

John Briggs, U.S. interest-rate strategist at RBS Securities in Stamford, Connecticut, called the three-year auction results “fine,” and said the large portion of the sale taken by dealers could help flatten the yield curve.

David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut, said price cuts before the auction gave the sale a firm tone. He pointed to the “decent” 3.26 ratio of bids received over those accepted.

Ader said the market was balancing out the crosscurrents of supply coming from the Treasury’s auctions against the prospect of supply being drained from the market by the purchases the Fed will make as it tries to stimulate U.S. economic growth.

Unwinding hedges against corporate debt deals was another characteristic of the day’s trading, participants said.

The difference between the yields of benchmark 10-year U.S. Treasury notes and 30-year bonds reached a record wide of 159 basis points before the profit-taking began and traders started buying the longer-dated bonds, which began to look appealing compared to other Treasury securities.

After the Fed said last week it would buy $600 billion in assets, the bond had to adjust to fear the stimulus program might create too much inflation and the fact the Fed planned to buy very few 30-year bonds relative to shorter maturities, said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey.

Tipp said the difference between 10- and 30-year yields could begin to shrink if the market decides “the massive risk premium between 10s and 30s is more than adequate to compensate for the risk that the Fed could go wrong in its program.”

The 30-year bond outperformed other Treasury note prices on Monday for the first time since the Fed’s announcement.

Marty Mitchell, chief market technician at Stifel Nicolaus in Baltimore, said some Treasury traders had already begun to place bets related to the Fed’s announcement, scheduled for Wednesday, of a specific plan for the $600 billion Treasury purchasing program.

“The five-year sector is probably going to see the brunt of the buying,” Mitchell said.

Five-year notes were down 6/32 in price to yield 1.13 percent, up from 1.09 percent at Friday’s close.

Benchmark 10-year note prices were down 6/32, its yield rising to 2.56 percent from 2.55 percent late on Friday.

Thirty-year bonds slipped 2/32 in price, their yields edging up to 4.13 percent from 4.12 percent on Friday.

(Additional reporting by Chris Reese and Emily Flitter)

(Editing by Andrew Hay)

Treasury prices slip, but 30-year bond suffers less