By Dow Jones Business News, September 10, 2013, 02:16:00 PM EDT
By Carolyn Cui
-Treasury prices remained under pressure Tuesday--even after decent demand at a U.S. government debt auction--as the
market faced fresh signs that China's economy is stabilizing and a massive upcoming debt sale by Verizon Communications.
In early afternoon trading, the benchmark 10-year Treasury note declined 12/32 to yield 2.944%. The 30-year bond lost
19/32 to yield 3.874%. Bond prices move inversely to yields.
The Treasury's sale of $31 billion in three-year notes got a strong reception from investors, drawing $3.29 in bids
for every $1 worth of notes on sale, above the average $3.22 from the past four three-year auctions, according to CRT
The new notes were sold at a 0.913% yield, the highest rate since a 1% rate was offered in May of 2011.
Higher yields attracted direct bidders--a category that includes bidding from U.S. mutual funds and some broker-dealer
firms, who took down 20% of the notes. The average was 12.6% at the last four auctions.
Overnight, China, the world's second-largest economy, reported stronger-than-expected industrial output in August,
growing at 10.4%, the biggest monthly increase since March 2012.
Meanwhile, the country's inflation readings remained muted, giving its policy makers more room to stimulate the
economy even as the U.S. Federal Reserve is ready to taper its support. A growing Chinese economy is seen spurring
exports from around the world, making stocks and commodities more attractive than fixed-income investments like
But the market recouped some of the early losses around noon, as world leaders continued to debate the fate of Syria.
"It's very touch and go at this point as far as how Syria will be handled as relates to the chemical weapons and whether
the U.N. will be involved," said Thomas L. di Galoma, co-head of fixed-income rates trading at E D & F Man Capital.
The Verizon deal continued to weigh on U.S. Treasurys, as interested investors are dumping their Treasury holdings in
order to make room for the purchase and investment banks are selling short Treasurys to hedge their interest-rate risk
in a trade called "rate-locking."
Verizon is expected to raise $20 billion or more Wednesday in what would be the largest-ever debt sale by a company.
The deal would help fund Verizon's $130 billion buyout of U.S. wireless joint-venture partner Vodafone Group PLC.
"For the moment, people are just trying to sort out all the little pieces of information. But the overall bias is
negative as interest rates become normalized going into next year," said David Ader, head of government-bond strategy at
CRT Capital LLC.
As the deal gets closer, the Treasury market might see better buying as dealers will buy back their hedges. But the
buying might be offset as investors continue to sell Treasurys, analysts say.
The Treasury Department is scheduled to auction $21 billion worth of 10-year notes Wednesday and $13 billion in 30-
year bonds Thursday.
Write to Carolyn Cui at firstname.lastname@example.org
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