Treasuries Fall With Japanese Bonds as Low Yields Erode Demand

  • U.S. plans to auction $20 billion 10-year debt Wednesday
  • Technical indicator shows Japan debt reached overbought level

U.S. and Japanese government bonds fell as record-low yields in the Asian nation curbed demand for sovereign debt before a sale of 10-year Treasury notes.

The move is a reversal from Tuesday, when Japan ignited a global bond surge as its benchmark 10-year yield slid to an unprecedented minus 0.1 percent. A technical indicator showed the rally reached overbought levels. The 14-day relative-strength index for Japan’s 10-year yields dropped to 29, below the threshold of 30 some traders see as a sign a security has moved too fast. The U.S. plans to auction $20 billion of 10-year notes after a sale of three-year securities Tuesday drew the weakest demand since 2009.

“Treasuries have been driven by the performance of risk assets recently,” said Nick Stamenkovic, a fixed-income strategist at broker RIA Capital Markets Ltd. in Edinburgh. “After the sharp fall in JGB yields we’ve seen a bit of a correction there and Treasuries seem to be dragged down by that, as well as some improvement in risk appetite.”

Treasury 10-year yields rose four basis points, or 0.04 percentage point, to 1.87 percent as of 9:35 a.m. New York time, according to Bloomberg Bond Trader data. The 1.625 percent note due February 2026 fell 10/32, or $3.13 per $1,000 face amount, to 97 27/32. The yield dropped eight basis points Tuesday, the steepest decline since Feb. 18.

The yield on similar-maturity Japanese debt climbed seven basis points to minus 0.03 percent Wednesday, based on prices from Japan Bond Trading Co.

Market Driver

Japanese bonds are driving global debt markets, Goldman Sachs Group Inc. said last week, basing its conclusion on an analysis of the securities’ volatility. The bonds have returned 5.1 percent in the past three months, the best performance of 26 sovereign-debt markets tracked by Bloomberg.

The U.S. Treasury Department sold $24 billion of three-year notes on Tuesday at a yield of 1.039 percent. The bid-to-cover ratio, which gauges demand by comparing the number of bids to the amount of securities sold, fell to 2.71, the lowest since July 2009.

The 10-year notes scheduled to be sold Wednesday yielded 1.88 percent in pre-auction trading. The Treasury plans to sell $12 billion of 30-year bonds Thursday.

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