By Deborah Levine
Treasury prices declined Thursday, sending yields higher for a
fourth consecutive session, as the government completed the last of
the week's three record-sized note auctions.
Growing government-debt issuance is in sharp focus as President
Barack Obama released his budget for fiscal 2010 and predicted a
yawning $1.75 trillion federal deficit.
Ten-year note yields (UST10Y) rose 4 basis points, or 0.04%, to
stand at 2.97%. The benchmark note's yields earlier topped the 3%
mark for the first time since Feb. 9.
Bond prices move inversely to their yields. A basis point is
0.01 percentage point.
In the first sale of 7-year notes since 1993, the Treasury
Department sold $22 billion to yield 2.748%.
Bidders offered $2.11 for every dollar available.
Indirect bidders, a class of investors that includes foreign
central banks, bought 38.7% of the notes up for bid.
While there isn't a previous sale to compare this one to, it can
be said that more than a quarter of the offering going to indirect
bidders has the makings of a new auction, said Andrew Brenner,
co-head of structured products and emerging markets at MF
Global.
The return of a long-retired maturity is part of the
government's plan to increase bond issuance to finance all of the
programs and stimulus enacted by the Federal Reserve and Congress
in the hopes of stabilizing financial markets and helping bring the
recession to an end.
On Tuesday, the Treasury sold $40 billion in two-year notes,
followed by $32 billion in five-year notes (UST5YR) on Wednesday.
Both sales received decent overall demand from investors, but they
failed to inspire a rebound for the broader market.
Shorter maturities fared better as a trio of U.S. economic
reports issued Thursday came in weaker than analysts had expected
and stocks turned negative late in the day.
Two-year note yields (UST2YR) declined 1 basis point to
1.08%.
First-time applications for state unemployment benefits rose
36,000 last week, reaching a seasonally adjusted 667,000, the
highest since October 1982. And for the week ended Feb. 14, the
number of people collecting benefits climbed to a record 5.11
million, the Labor Department reported.
"The unemployment claims data are indicating a significant
pickup in the pace of job loss in February and a further rise in
the unemployment rate," said economists at RDQ Economics. They
expect the government employment report for February, to be
released next week, to show that the economy lost 750,000 jobs.
Separately, orders for durable goods fell a more-than-predicted
5.2% in January, extending their recent string. Orders had never
fallen six months in a row since the Commerce Department began
collecting this data in 1992.
Also Thursday, sales of new homes fell 10.2% in January to a
record low, data showed. The Commerce Department said sales fell to
seasonally adjusted annual rate of 309,000, worse than economists
anticipated.
Perhaps counterintuitively, the weak data aren't helping bonds,
said strategists at RBS Greenwich Capital.
"It's possible that the market has reached the point where there
is more supply than demand all other things being equal," they
wrote in an email.
Agency, corporate debt actions
Treasurys also competed for attention against other issuers
selling debt.
Housing finance giant Fannie Mae (FNM) sold $15 billion in
2-year notes to yield 1.801%. That's 68 basis points more than the
comparable Treasury, according to the mortgage agency.
And in corporate bonds, General Motors Corp.'s bonds held up
after the embattled automaker (GM) said earlier Thursday that it
lost $9.6 billion in the forth quarter and burned through $6.2
billion in cash.
GM's 7.125% bonds maturing in 2013 were trading at around 15
cents on the dollar, unchanged from Wednesday, according to KDP
Advisors. The bonds fell to as low as 13 cents earlier in the
month.
Companies have seen plenty of demand for new sales of debt this
month. Investors have been attracted to relatively high yields that
offer what many fund managers consider returns similar to equities
in an average year -- and far better than equities have performed
lately.
February is, so far, the third-busiest month on record for the
issuance of corporate bonds, according to Dealogic.