Treasuries Halt 4-Day Slide on Auction Demand Before Brexit Vote

Updated on
  • U.S. issues $46 billion in final three debt sales this week
  • Latest polls show narrow lead for ‘Leave’ in U.K. referendum

Markets Try to Make Sense of Brexit Polls

Treasuries rose, with benchmark 10-year notes halting their longest slide since April, after investors bought $46 billion of U.S. debt in three auctions Wednesday, one day before the U.K. votes on whether to remain in the European Union.

Yields fell from a two-week high as the latest opinion polls showed a narrow lead for “Leave” in the U.K referendum. The Treasury’s $28 billion seven-year note auction followed sales of $5 billion in 30-year Treasury Inflation-Protected Securities and $13 billion in two-year floating rate notes Wednesday morning. 

“The seven-year auction was strong, unlike its two-year and five-year counterparts” earlier this week, said Justin Lederer, an interest-rate strategist in New York at Cantor Fitzgerald LP, one of 23 primary dealers that are obligated to bid at U.S. debt sales. “The strong auction has, along with recent Brexit news, aided in slightly lower yields post-auction.”

U.S. debt declined for a fourth day Tuesday after a gauge of demand at a five-year note sale fell to the lowest since 2009. Benchmark 10-year yields touched the lowest since 2012 last week amid concern the U.K. will leave the EU and after the Federal Reserve pared its outlook for interest-rate hikes. In testimony to the U.S. Senate Tuesday, Fed Chair Janet Yellen reiterated that a vote to leave the EU could have “significant economic repercussions,” even as she warned against exaggerating its global impact.

Yellen Testimony

Benchmark 10-year yields fell two basis points, or 0.02 percentage point, to 1.69 percent as of 5 p.m. in New York, according to Bloomberg Bond Trader Data. The price of the 1.625 percent security due in May 2026 was 99 14/32.

A bidder group that includes foreign central banks and mutual funds bought the largest share on record at Wednesday’s TIPS sale. The 30-year break-even rate, which measures the difference between yields on TIPS and nominal Treasuries of equivalent maturity, rose by the most in two months, climbing to 1.63 percentage points.

Fed Chair Yellen concluded her two-day Congressional testimony, after saying Tuesday that the central bank was watching for whether, rather than when, the U.S. economy would show clear signs of improvement.

Futures indicate traders see a 44 percent probability that the Fed will tighten policy this year, down from a 76 percent chance seen at the start of the month.

— With assistance by Taylor Hall

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