Market Sense and Sentiment

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Strong 7-year note auction lifts Treasury prices

By SARA LEPRO – 4 hours ago

NEW YORK (AP) — Long-term borrowing rates fell back on Thursday as investors returned in numbers to pick up newly issued Treasury notes.
The 10-year Treasury note — a widely used benchmark for home mortgages and other kinds of consumer loans — gained nearly a point, sending its yield back down to 3.62 percent from 3.75 percent the day before.
Investors had sold off bonds on Wednesday, pushing long-term yields to their highest level in six months, on worries that the flood of U.S. government debt hitting the market this year would overwhelm demand.
Those concerns abated on Thursday after the Treasury
Department saw solid demand at an auction of $26 billion in seven-year notes, the third and final auction this week in which the government sold a total of $101 billion of debt.
There were more than twice as many bids as there were notes available, although the ratio was slightly weaker than in recent auctions. Also, the Treasury was forced to raise the yield by nearly 0.03 percentage points to entice buyers.
Stock investors have been taking their cues from movements in the Treasury market, and sent shares higher Thursday on relief that bond prices were recovering. Along with increasing borrowing costs for the government, rising yields on Treasury debt could delay a recovery in the battered housing market by increasing borrowing costs for homeowners. Banks have also been benefiting from a surge in mortgage refinancing, which could be compromised if rates remain high.
Josh Stiles, managing director of IDEAGlobal.com, said investors returned to the Treasury market on relief that the auctions are over and that it will be some time before new supply is pushed into the system.
"With the auctions over, there is a sense of relief and a desire to see the markets recover," Stiles said.
Treasury prices tumbled this week on concerns about the massive amounts of debt the government is selling to help fund its economic stimulus and financial recovery efforts. The Federal Reserve has undertaken a massive program of purchasing U.S. Treasurys and other kinds of debt in an effort to keep borrowing rates low.
The benchmark 10-year Treasury note rose 30/32 to 95 28/32, pushing the yield down to 3.62 percent from 3.75 percent. The 30-year bond rose 2 21/32 to 96 1/32, sending its yield down to 4.49 percent from 4.65 percent.
The two-year note inched up 1/32 to 99 26/32. Its yield slipped to 0.98 percent from 0.99 percent.
The yield on the three-month Treasury bill fell to 0.13 percent from 0.15 percent. Its discount rate stood at 0.14 percent.
Investors were little phased after Moody's Investors Service on Wednesday affirmed the U.S. government's top-shelf "Aaa" rating. Investors had sent Treasurys lower last week on concerns that the U.S.'s rating could be in jeopardy after Standard & Poor's, another ratings agency, warned it might downgrade the U.K.'s rating.
The cost of borrowing between banks held steady after a modest increase on Wednesday. The British Bankers' Association said the rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — was unchanged at 0.67 percent.
The rate, which is still near record lows, had been falling consistently for most of the past month on hopes that the worst of the recession was over.
Copyright © 2009 The Associated Press. All rights reserved.


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