By Dow Jones Business News, September 25, 2013, 04:12:00 PM EDT
By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices rose on Wednesday after a well-bid auction of 5-year notes, as the market
honed its focus on fiscal-policy drama playing out in Washington.
The 10-year note (10_YEAR) yield, which moves inversely to price, fell 4 basis points on the day to 2.618%, closing
lower for its fourth consecutive session. The 30-year bond (30_YEAR) yield fell 3 basis points to 3.658%.
The 5-year note (5_YEAR) yield traded 4 basis points lower on the day at 1.386% after an auction of $35 billion worth
of the notes. They sold at a high yield of 1.436%, slightly higher than where the broader market was trading at the time
but below the 1.500% price at last month's 5-year note sale.
The ratio of bids to the amount of debt sold came in at 2.67 times, above the average of 2.61 times during the past
Ongoing concerns about Congressional action to pass a budget and raise the debt ceiling may also be providing a boost
to Treasurys. The government has six days to pass a bill that would avoid a government shutdown, while Treasury
Secretary Jacob Lew said the government will hit the debt ceiling on October 17. Nonetheless, markets could begin
pricing in a mishap before then.
"The well received 5-year auction speaks to an environment that has provided a bid for the bond market following the
Fed's decision to maintain its activist ways as the leadership vacuum in Washington seems unlikely to change anytime
soon," said Adrian Miller, direct of fixed-income strategy at GMP Securities, in a note.
Nonetheless, the auction's direct and indirect bidders bought slightly less than average leaving dealers with an
above-average take-down. Indirect bidders, which can include foreign central banks, bought 44.9%, versus a recent
average of 46.8%, while direct bidders, which often include domestic money managers, bought 11.8%, versus an average of
The auction follows a $33 billion sale of 2-year notes on Tuesday and comes before a $29 billion sale of 7-year (7_
YEAR) notes on Thursday.
Also benefiting bond prices was continued chatter that Federal Reserve Vice Chair Janet Yellen could be named to the
central bank's top post next week. Yellen has been seen by markets as a candidate who would continue most faithfully on
the Fed's current monetary-policy path.
If appointed, "you'd have clarity and continuity of policy," said Ira Jersey, interest-rate strategist with Credit
Suisse Group AG. "I wouldn't be surprised if the market rallied a few basis points."
A large volume of corporate debt sales Wednesday was also a focal point for the bond markets. While the offerings
don't appear to be having a huge impact on Treasurys, they may be restraining the market to some extent, according to
David Ader, head of government bond strategy at CRT Capital Group LLC, in a note. "All things being equal, we probably
would have been a little bit firmer if not for the corporate supply," he said.
Corporations sold roughly $18 billion in new debt on Tuesday, with total weekly issuance already close to $30 billion,
according to Stone & McCarthy Research Associates.
The bond market has proven resilient in the face of new supply. A week of mega bond sales earlier this month brought
out substantial demand for an attractively-priced Verizon Communications Inc. ( VZ ) offering of $49 billion in high-grade
corporate debt and a trio of Treasury auctions.
Durable-goods data on Wednesday painted a mixed picture of factory orders. The gauge rose 0.1% in August, which beat
estimates of a 1.5% drop. Durable-goods orders were driven by demand for automobiles, with core orders -- which strip
out the transportation sector -- down 0.1% in August. New-home sales rebounded, climbing 7.9% to an annual rate of
421,000 in August, its biggest jump since January. That beat consensus estimates of 420,000.
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