MW: Treasurys rise ahead of last auction of the week
NEW YORK (MarketWatch) -- Treasury prices gained Thursday, pushing yields down by the most this week, ahead of the government's auction of long-term bonds, which comes on the heels of two successful note sales this week.
A number of corporate bond pricings figured into the action in U.S. debt, which shrugged off economic data showing falling jobless claims and a widening trade deficit.
"For all of the concerns that improving economic conditions would take the steam out of the 'fear' trade and about the federal government's seemingly insatiable appetite for debt, demand for newly issued Treasurys has remained surprisingly robust in recent months," said Kevin Giddis, managing director of fixed income for Morgan Keegan & Co.
Yields on benchmark 10-year notes (UST10Y 3.41, -0.06, -1.61%) , which move inversely to prices, fell 7 basis points to 3.41%. A basis point is 0.01%.
Yields on 2-year notes (UST2YR 0.88, -0.03, -3.07%) also declined, off 4 basis points to 0.89%.
Wrapping up the week's schedule of debt auctions, the Treasury Department is selling $12 billion in 30-year bonds, with bids due at 1 p.m. Eastern time.
The sale is a reopening, meaning the debt sold will mature at the same time and carry the same yield as the originally issued securities, in this case sold last month. Reopenings are generally for smaller amounts than the original securities.
Yields on the current 30-year bonds (UST30Y 4.27, -0.05, -1.25%) fell 6 basis points to 4.27%.
The government already saw strong demand for 3-year notes (UST3YR 1.43, -0.05, -3.37%) and for 10-year debt this week.
Plenty of individual investors who have been sitting in money-market funds may find Treasurys attractive compared to near-zero rates in ultra-short-term instruments, said John Williams, fixed-income portfolio manager at Barrow Hanley Mewhinney & Strauss.
"They think they've got to do something, so some go into Treasurys," he said. Also, ongoing weakness in housing and the labor market will support bonds.
"This is an ongoing problem and will be slow to recovery," he said. "That will help keep the inflation rate low and contain Treasury yields."
Earlier, bonds had traded lower after the Labor Department said initial claims for unemployment benefits fell in the latest week. The number of people collecting regular state benefits dropped 159,000 in the week ended Aug. 29 to a seasonally adjusted 6.09 million, the fewest since April. See story on jobless claims.
The drop in claims is still at levels seen in recessions, and may in part be because "firms are running out of extra workers to fire," said Steven Ricchiuto, chief economist at Mizuho Securities USA. The drop in continuing claims has widely been attributed to Americans running out the ability to receive benefits.
A separate government report showed the nation's trade deficit widened more than expected in July, which analysts noted would be a drag on the broader economy and tends to support government bonds. See more on trade gap.
"The data on jobless claims and the July trade deficit suggest that the hoped for strong recovery is unlikely to develop," Ricchiuto wrote in a note. The firm is one of the 18 primary government security dealers required to bid at Treasury auctions.
Traders also noted several corporate-bond sales in the market, which can push the market for government debt around.
Companies and traders enter into so-called rate lock agreements, in which they bet on Treasury prices falling to guard against the effect higher yields would have on the planned debt sale. Once the debt is sold, the hedges are reversed.
Among the deals Action Economics expects to be priced on Thursday, MetLife (MET 37.74, -0.22, -0.58%) is selling $500 million in debt, joining two other large financial institutions, though the amount hasn't been determined yet.
Issuance of investment-grade debt has been surprisingly high in recent weeks, pushing the year-to-date volume to a new yearly record, with a few months left to go, Informa Global Markets said. So far in 2009, companies have sold more than $929 billion in debt, bettering the previous record, set in 2007, of $917.8 billion.
On Wednesday, Treasurys received a boost after the Federal Reserve said in its Beige Book report that the economy is improving but noted continued weakness in consumer spending and loan demand.
