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December 12, 2009

Treasurys tumble after lackluster 30-year sale

Filed under: money — Tags: — ManInBlack @ 3:17 pm

U.S. Treasury debt prices fell on Thursday, sending 30-year yields to four-month highs, after a poorly bid long-bond auction rekindled worries over the huge federal budget deficit.

The government sold $13 billion of 30-year bonds in an auction that was weak on all measures and suffered from its year-end timing, when many financial market professionals are reluctant to commit funds for such long-term investments.

However, the gaping U.S. budget deficit will outlast the seasonal factors and some analysts worried that the sloppy long bond auction was a sign of tough times to come for a government that has tried to borrow its way out of a credit crisis.

"It was pretty ugly. The old lump of coal in the stocking," Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.

"It is just going to be a difficult year ahead fiscally and with respect to monetary policy and also the markets. I think today’s 30-year auction could just be the harbinger," she said.

The 30-year long bond fell rapidly after the auction, pushing yields up as far as 4.51%, their highest since August.

They were last down 30/32, yielding 4.48% versus Wednesday’s close of 4.42%.

The benchmark 10-year note fell 8/32, yielding 3.47%, versus Wednesday’s close of 3.44%. During the selloff, benchmark yields rose to a four-week high of 3.52%.

However, the market recovered from its worst levels as both 4.50% 30-year yields and 3.50% 10-year rates have been seen as attractive levels by some investors to get into bonds paperless payday loans.

The 30-year auction ended this week’s three offerings totaling $74 billion. Though that’s below the weekly record of $123 billion set in October, it is a lot of debt to sell in a traditionally quiet time of the year.

"This was a sloppy reception to the long end of the curve, largely driven by the lack of players at year-end," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.

Though analysts blamed seasonal factors for the poor results, given that many money managers focus on bookkeeping and window dressing this time of year, it could leave the market jittery going into the new year.

The burgeoning U.S. national debt has placed extraordinary focus on bond auctions this year, especially after investors appeared to question the longevity of the United States’ prized AAA rating for a brief time back in May.

Government borrowing shot higher this year as Washington paid for bailouts of the financial sector and measures aimed at stimulating the economy amid the worst recession in seven decades.

Ironically, signs of economic recovery, such as last week’s surprisingly low job-loss figures, could put more downward pressure on the bond market as investors demand higher yields or respond to the temptation of riskier assets such as stocks. 

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