U.S. debt prices edge lower ahead of 5-year auction

By Emily Flitter

LONDON (BestGrowthStock) – U.S. Treasury prices edged lower on Tuesday during European trading hours, as volume in the market remained very light and trading activity focused on a coming five-year note auction.

A Treasury trader in Berlin said it was difficult to attribute the very slight price action to one driver, since liquidity was so thin. He estimated trading volume was between just 20 percent and 30 percent of normal levels.

The U.S. Treasury Department will sell $35 billion in five-year Treasury notes at 1800 GMT (1 p.m. EST), and a very slight concession appeared to be taking shape ahead of the auction, with the five-year note off 3/32 to yield 2.05 percent.

“The two year auction went well yesterday so that might have taken a little bit of fear out of the market,” said Signe Roed Frederickson, senior analyst at Danske Bank in Copenhagen.

The Treasury market rallied and yields fell on Monday after a $35 billion two-year note auction saw strong demand, with the high yield at the auction registering roughly 1.5 basis points below the level at which comparable securities were trading simultaneously in the open market.

“More generally, we think that the latest rise in bond yields was a bit overdone,” Frederickson said.

“We see the downward move in yields now as more of a correction back to fair levels. We wouldn’t be surprised to see it continue for some time into the new year.”

But the source of a further rally may prove elusive. There is little on tap for Tuesday other than the five-year auction. Data on consumer confidence, as well as a measure of home price movement in 20 major U.S. cities, may give traders something else to digest.

The S&P Case-Shiller home price index, which will show home price movement in October, is due at 1400 GMT (9a.m. EST), while December consumer confidence data is due at 1500 GMT (10 a.m. EST). London markets remain closed for a bank holiday.

(Editing by Catherine Evans)

U.S. debt prices edge lower ahead of 5-year auction