Bonds Consolidate with As-Expected FOMC Minutes Out of Way

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U.S. Treasuries had been trimming losses fairly steadily following the excellent seven-year auction through to the release of the Nov. 1 – 2 Federal Open Market Committee minutes. However, prices then slipped and began to consolidate at lower levels. The five-year continued to get hit hardest while the long bond outperformed. The fives have been beaten back to levels last seen mid-2011, on a closing basis while the two-years remain at 2010 levels.

The 30-year has moved to hold near 3.025% from a high yield/low price at 3.09% ahead of the early-execution of the auction while the 10-year is near 2.355% from a low near 2.4175%. The five-year has pushed back to 1.84% from 1.883% and the two-years near 1.135% from a 1.1535% low.

The curve trade flattened, with the yield spread between the two- and 10-years reversing an early steepening bent. It tightened to 1.22 from 1.22 plus Tuesday, while the five- and 30-year yield differential has narrowed to 1.18 plus from 1.23.

The $28 billion seven-year sale capped the week’s $88 billion in coupon auctions following average to tepid showings in the week’s earlier two- and five-year sales. Buyers took a significantly lower yield to own the paper, while foreign demand was at a record high for that maturity.

Economic reports were mixed, but better on net, with a surge in October durables while jobless claims were in line and remained near 43-year lows and consumer sentiment beat expectations. September home prices rose, albeit, a bit shy of consensus, while October home sales had a much bigger-than-expected drop.

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