Thursday, September 9, 2010

First domino down? Treasuries lower after disappointing 30-year bonds auction

If treasuries lose their 'safe haven' status - what remains?

TLT - 20+ years bonds ETF showing right now a 2% drop. Some might perceive it to be nothing more than a correction on security which is known to fluctuate in value. Short term treasuries still holding well (SHY).

Treasuries Extend Losses After Auction of $13 Billion in 30-Year Bonds
Treasuries fell as the government sold $13 billion of 30-year bonds after economic reports showed initial jobless claims dropped last week more than economists forecast and the trade deficit narrowed.

The bonds drew a yield of 3.820 percent, compared with the average forecast of 3.806 percent in a Bloomberg News survey of 9 of the Federal Reserve’s 18 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount offered, was 2.73, versus 2.77 at the auction last month and an average of 2.65 for the past 10 offerings. Today’s sale, a reopening of the August sale, is the final of three note and bond auctions this week totaling $67 billion.

“There’s a lot of supply, not just here, but globally,” said Thomas Tucci, head of U.S. government bond trading in New York at the primary dealer Royal Bank of Canada in New York, before the auction. “There’s concern about the global supply picture and if rates will attract enough buyers.” As a primary dealer, RBC is obligated to participate in Treasury auctions.

The yield on the 30-year bond gained 10 basis points, or 0.10 percentage point, to 3.83 percent at 1:05 p.m. in New York, according to BGCantor Market Data. The yield on the benchmark 10-year note gained 9 basis points to 2.75 percent.

The extra yield that investors demand for 30-year bonds compared with 10-year debt was 1.07 percentage points before the auction. It touched a record high 1.25 percentage points when Fed policy makers met Aug. 10. The five-year average is 0.50 percentage point, according to Bloomberg data.

Spooked yet?

Cheers!

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