Treasurys suggests the market has priced out a rate increase

Treasury yields tumble to 1-month low after 10-year auction sees strong demand

The Treasury Department sold $23 billion in 10-year notes.

Strong demand for Treasurys suggests the market has priced out a rate increase, analysts say

Treasury prices rose Wednesday, pushing yields to their lowest level in a month, after an auction of $23 billion in 10-year Treasurys saw strong demand from foreign buyers.
Treasury auctions often influence secondary-market trading. If a Treasury auction sees frenzied appetite and closes at a lower yield than anticipated, yields of existing Treasury bonds tend to follow suit.
Wednesday’s auction was scooped up by foreign buyers, leading the 10-year notes to be sold at 1.710%, 2 basis points below expectations, according to data from Jefferies. Indirect bidders, a group of buyers that includes foreign central banks, bought 73.5% of the new notes, a record-high amount dating back to May 2003 when the data was first released. Treasury yields, which had been unchanged for most of the day as traders were reluctant to place bets ahead of the auction, tumbled following the auction’s strong results.
The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, +0.75% the Treasury market’s benchmark, fell 2.3 basis points to 1.737%, its lowest level since April 11, according to Dow Jones data.
The yield on the 30-year bond TMUBMUSD30Y, +0.71% shed 3.8 basis points to 2.576% and the yield on the two-year Treasury note TMUBMUSD02Y, -0.01% pared its previous increase to end unchanged at 0.726%. One basis point is one-hundredth of a percentage point. Analysts pointed to the strong auction as the main driver of Wednesday’s rally in the Treasury market. A selloff in stocks also fueled demand for assets perceived as safe, mainly government debt.
Wednesday’s strong auction followed a recent trend of high demand for newly issued government bonds. On Tuesday, an auction of $24 billion in 3-year Treasury notes drew more bidders than expected, causing yields to decline. The Treasury Department will also sell $15 billion in 30-year bonds on Thursday. “We have seen notably strong receptions to the auctions so far this week,” said Ian Lyngen, senior rates strategist at CRT Capital Group, in emailed comments. “The broader point is fairly clear; there is strong demand for the liquidity provided by the auction process in the current environment,” Lyngen added. “The demand for fixed-income products, seemingly at any price, remains profound,” said Thomas Simons, senior money-market economist at Jefferies, in emailed comments. According to Simons, high demand for Treasurys demonstrates the market’s conviction that the Federal Reserve won't raise interest rates soon. The Fed ‘s policy-setting Federal Open Market Committee is set to meet June 14-15, but isn’t expected to lift rates based on fed-fund futures.
“The market is pricing the Fed out, despite a 3% rally in oil today and reasonable economic data in recent weeks. Ultimately these views will likely prove wrong, but the question is how long will it be before this is proven,” Simons said.
In Europe, the yield on the 10-year German bond TMBMKDE-10Y, +10.28% known as the bund, gained 1.1 basis point to 0.126%.


source: www.marketwatch.com