Long Bond Leads Lower as Losses Extend to Early June Levels – 10-Year 1.852%

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U.S. Treasuries continued to tumble lower Thursday with the long bond hit hardest as the market went after the highest yield/lowest price levels since early June or late May. Participants are cautious ahead of the seven-year auction anticipating below-average results. Friday’s release of the advance Q3 gross domestic product (GDP) report is expected to confirm there will be a 25 basis point hike at the Dec. 13 to 14 Federal Open Market Committee meeting. The market was driven lower overnight following U.K. Gilts as GDP surprised to the upside weighing on hopes for future stimulus.

The 30-year recently traded near 2.61% from a 2.63% low and a close near 2.535% Wednesday. The 10-year is near 1.855% having hit 1.8698% versus a 1.788% close. The five-year is near 1.347% after trading to 1.36% from 1.305% while the two-year is back to 0.888% from a 0.8995% low and 0.872% close.

The curve trade continued to track along a steeper slope with the yield differential between the two- and 10-years pushing the widest gap since mid-month at 96 plus from 91 plus Wednesday while the five- and 30-year yield spread is near 1.26 from 1.23.

Technical trade has piled-on as the market cut through recent support levels with the 10-year challenging the 1.87% yield point.

The Sept. 28 $28 billion seven-year auction was graded “OK” with buyers accepting a slightly lower yield to own the issue, awarded at 1.389% against the 1.390% reported at the deadline. Overall demand showed buyers ponied-up $2.47 for each $1 on offer beating August’s $2.38 (the lowest since February) but shy of an average $2.50. Indirect bidders, the proxy for official foreign interests, took 59.4% from 58.3% previously and an average 60.5%. Primary dealers, those banks required to bid at auction, were left with a slightly smaller 30.2% from 31.3%.

Data revealed durable goods and initial jobless claims figures that largely tracked estimates, though modest shortfalls in September headline and equipment orders put a slightly negative spin on the durables report. The 3,000 claims drop to a lean 258,000 was nevertheless a touch above the 255,000 consensus. September pending home sales beat expectations, rising 1.5% versus an expected 1.0%.

Treasury will auction $42 billion three- and $36 billion six-month bills Monday. The results of the seven-year sale are due at 1 p.m. ET.

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