By Dow Jones Business News,
June 11, 2014, 04:43:00 PM EDT
By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) -- Benchmark Treasury prices slipped Wednesday after an underwhelming auction of 10-year notes,
pushing yields higher for their fourth straight session and their ninth time in 10 trading days.
The 10-year note (10_YEAR) yield, which rises as prices fall, edged up half a basis point on the day to 2.640%,
despite trading lower for much of the day, according to Tradeweb. The yield is up over 20 basis points since bouncing
off an 11-month low of 2.438% at the end of May.
The swing higher in yields on Wednesday came after an auction of $21 billion in 10-year notes failed to impress. The
notes sold at a yield of 2.648%, higher than where the broader market was trading at the time.
"The market apparently wants to take a wait-and-see approach with next week's Fed's meeting hanging over the market,"
said Adrian Miller, director of fixed-income strategy at GMP Securities, in a note. Nomura Securities awarded the
auction a grade of B-.
Indirect bidding was below average, with investors taking down 36.1% of the debt, compared with an average of 47.1%
in the last six sales. Indirect bidders often include foreign central banks. Direct bidders, which can include domestic
money managers, bought 19.4% of the sale, compared with 17.5% in recent sales.
Bidders offered to buy 2.88 times the amount of debt for sale, compared with the recent average of 2.69 times.
Trading action across the capital markets has been relatively subdued with low volatility and low volumes, worrying
some investors. Jim Sarni, managing principal at Payden & Rygel, called it a "a widespread calmness in the markets that
is disconcerting. There seems to be somewhat of a cavalier attitude."
The rise in Treasury yields in recent sessions reverses a sharp drop during the spring, as the market eluded the
expectations of most investors. The moves raised concerns about the pace of economic growth and stoked speculation about
how and when the central bank would raise its key lending rates. The rally was aided by technical positioning in the
market, which gained as investors closed out short positions and bought into the rally.
However, many strategists see the market returning to a focus on the fundamentals of the U.S. economy, which is
showing steady improvement in inflation and labor conditions. That may push bond yields higher as investors begin to
revise forward expectations of when the Fed hikes rates. Traders who bet on the future path of the fed funds rate
expected the first hike to come in July of next year, according to CME FedWatch.
"U.S. Treasurys have begun the process of unwinding overbought conditions that had developed during the course of this
year's rally," said William O'Donnell, head Treasury strategist at RBS, in a note to clients. He added that the recent
rise in rates may be sustainable over the next few months.
The 30-year bond (30_YEAR) yield rose slightly on the day to 3.469%. The 5-year note (5_YEAR) yield fell half a basis
point to 1.701%.
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