Treasuries Yield Curve Steepens as Three-Year Sale Draws Demand

  • $24 billion auction sees strongest appetite since August
  • 10-year yield at 2.6% would mark end to bull market: Gross

Bond Yields and the Fed's 'Bear Flattener'

The Treasuries yield curve steepened as an auction of three-year notes saw the strongest investor appetite since August.

The $24 billion sale drew a yield of 1.472 percent, the highest for the maturity since April 2010. A gauge of demand known as the bid-to-cover ratio rose to 2.97. Indirect bidders, a class of investors that includes mutual funds and pension funds, bought about 55 percent, compared with an average around 51 percent for the previous 10 sales.

After a five-month selloff, the longest in more than five years, signs have emerged that traders are starting to lose conviction. Investors turned less bearish on Treasuries in the week ended Jan. 9, with net shorts declining to the least since Nov. 28, a JPMorgan Chase & Co. survey showed.

  • Ten-year yields rose about one basis point to 2.38 percent; an increase to 2.6 percent would mark an end to the three-decade bond bull market, Bill Gross said
  • The gap between five-, 30-year yields widened by less than one basis point, to 109 basis points
  • Three-year auction begins cycle that continues with $20 billion of 10-year Wednesday, and $12 billion 30-year Thursday
  • The 10- and 30-year auctions will be more indicative of investors’ appetite for Treasuries, said Gennadiy Goldberg, an interest-rate strategist at TD Securities LLC.
  • Investment-grade issuance was quiet with just $4.1 billion priced; swap spreads drifted wider throughout the session, ending within one basis point of previous day’s close
  • U.S. economic calendar this week includes December PPI and retail sales
  • For Fed speakers, Dudley speaks Wednesday, Harker, Evans, Bullard, Kaplan and Yellen later in week
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