Justin Lederer Comments: Treasury Prices Slip After Weak 30-Bond Sale
January 13, 2012, Investor's Business Daily
U.S. Treasury debt prices slipped slightly on Thursday after investors showed scant interest in buying 30-year bonds at the Treasury's final coupon auction of the week.
The Treasury sold $13 billion in reopened 30-year bonds at a high yield of 2.985%, awarding 69.8% of the bids at the high. The 30-year Treasury bond, up 10/32 in price before the auction, fell afterward. In late trade, however, it was barely changed on the day, yielding 2.97%.
"It was a sloppy auction, especially considering that reopenings typically go much better than the new issues," said Thomas Simons, money-market economist at Jefferies & Co. "This was the widest stop since December 2009," he said, referring to the difference between the auction high yield and the yield at the 1 p.m. deadline for bids.
The ratio of bids received over those accepted was just 2.6, below the average of 2.81 in the four most recent auctions and below an average of 2.68 in 2010, CRT Capital Group Treasury strategist Ian Lyngen said.
Dealers got the biggest share of the bonds since the 30-year bond sale in August 2011 as the direct bid, which had supported strong auctions in recent months, evaporated to a 7.2% "takedown," the smallest portion since March, Simons said.
"Whether we are talking about investors or business owners (in the real economy), there is a complete lack of willingness to make a long commitment," said James Sarni, managing principal at Los Angeles-based Payden & Rygel.
In the markets, "people are struggling to figure out where the equilibrium should be," he said.
The Treasury's bond auction followed a morning of "relatively volatile" trade within limited ranges, Cantor Fitzgerald Treasury strategist Justin Lederer said. After the government released new jobless claims and December retail sales data early on, the bond sale became the market's main event.
Before the auction, 30-year bonds outperformed shorter-term maturities, signaling the sale would go well, Lederer said. But with a lackluster direct bid and less-aggressive bidding in general, that did not turn out to be the case this time.
The 2.6 ratio of bids received over those accepted was much below last month's 3.05 bid-to-cover ratio, Lederer observed.
Treasury prices weakened after the sale. The benchmark 10-year note slipped 4/32, its yield rising to 1.93% from 1.91% on Wednesday.
Worse-than-expected figures on U.S. jobless claims and December retail sales revived worries about the U.S. economy and tempered an earlier boost in investor confidence due to strong bidding at auctions of Spanish and Italian sovereign debt. The robust bid reassured investors that the euro zone's third- and fourth-largest economies could roll over their debt, a dynamic that would tend to curb safe-haven demand for Treasuries.
