By Deborah Levine
Treasurys declined Tuesday, pushing yields up, before the
government sells the first part of $98 billion in note auctions
this week.
Two-year note yields (UST2YR) increased 2 basis points, or
0.02%, to 0.92%.
Benchmark 10-year yields (UST10Y) rose 7 basis points to 2.72%.
Bond yields move inversely to prices.
The Treasury will accept bids on $40 billion in the securities
until 1 p.m. Eastern. The amount matches a record-high set last
month.
Traders and investors often sell existing holdings in order to
buy to the more liquid, newest securities.
It will sell a record $34 billion in 5-year notes (UST5YR) on
Wednesday. On Thursday, it will auction $24 billion in 7-year
notes, only the second sale of the maturity in more than a decade.
Both amounts are $2 billion more than at the last sale.
"The prospect of three large Treasury auctions puts us in the
inevitable 'let supply wreak its havoc' mode," said strategists at
RBS Greenwich Capital.
These will be the first auctions since the Federal Reserve last
week said it would buy up to $300 billion in Treasury securities,
with a focus that includes these maturities, over the next six
month. Its purchases are expected to be made from the market, not
directly at the auction, but analysts note the central bank is
likely to be most interested in the newest issues, since they serve
as benchmarks for rates on other forms of debt, including
corporate, mortgage and consumer lending.
Doing that would also relieve pressure on the government's 16
primary dealers that have to bid at auctions of ever-increasing
amount of debt to finance all of the economic stimulus and programs
to fix the financial markets.
"An informal Fed backstop for the auction process would remove
some of the underwriting risk for dealers and might result in lower
market yields," said analysts at Wrightson ICAP, a research firm
specializing in government finance. "Unfortunately, the Fed may not
be ready to commit itself to a specific framework for Treasury
purchases as early as today."
Last Wednesday, the Fed said in a statement it would begin
purchases late in the week.
Though less material for the broader bond market, the government
will also issue $35 billion in 4-week bills (UST1MO) Tuesday.
Also on tap Tuesday, Federal Reserve Chairman Ben Bernanke and
Treasury Secretary Timothy Geithner will be testifying to a
congressional committee about the bailout of American International
Group. (AIG).