Prices slip on profit-taking after recent gains

NEW YORK - US Treasuries prices slipped on Thursday as talk that China could launch more monetary stimulus inspired profit-taking in safe-haven US government debt after recent gains.

By (Reuters)

Published: Thu 27 Sep 2012, 9:10 PM

Last updated: Tue 7 Apr 2015, 11:12 AM

US economic reports were mixed for Treasuries. A drop in new claims for jobless benefits would have been bearish for US debt, but a decline in orders for long-lasting goods in August was positive, along with a downward revision to second-quarter growth to 1.3 percent from 1.7 percent reported earlier.

Data showing an unexpected drop in August pending home sales appeared to lead Treasuries to trim some losses.

The profit-taking followed eight consecutive sessions of gains, beginning in mid-September.

“Treasuries briefly pared losses on news of the unexpectedly sharp drop in orders for durable goods in August, but overall they moved lower due to the modest risk-on sentiment in markets and a little reversal of the rally we have seen in US Treasuries over the past few sessions,” said Eric Stein, vice president and portfolio manager at Eaton Vance in Boston.

A downward revision to second -quarter growth in gross domestic product t o 1.3 percent from the 1.7 percent growth last reported would have helped Treasuries, but markets are looking forward and are more keenly focused on labor market data and a worldwide impetus for further monetary easing.

“The drop in jobless claims, after two 380,000-plus readings, is the more important development for judging current momentum, arguably more important also than the dramatic, but exaggerated, plunge in (August) durables,” said Jim O’Sullivan, chief US economist at High Frequency Economics in Valhalla, New York.

Sullivan said looking through recent volatility, the trend in jobless claims looks “no worse than flat,” suggesting neither acceleration nor deceleration in employment growth.

While Treasuries posted losses, traders added that uncertainty over when Spain would request a bailout needed to activate the European Central Bank’s latest crisis-fighting measures kept the selling restrained.

The talk about China centered on whether its Securities Regulatory Commission would announce steps to support domestic financial markets. China’s securities regulator holds a regular meeting on Thursday.

China’s central bank injected a net $57.92 billion into money markets this week, the largest weekly injection in history.

The Treasury market was also focused on supply, with the Treasury set to sell $29 billion in seven-year notes this afternoon, the third and final note auction the Treasury will conduct this week. Wednesday’s sale of five-year notes drew strong demand.

Justin Lederer, Treasury strategist at Cantor, Fitzgerald in New York, said the auction should go well “with month-end tomorrow, the safe-haven bid with the multiple unknowns and concerns around the globe, and the support of the sector by the (Federal Reserve’s) buying programs.”

The Fed has been buying seven-year notes as part of its Operation Twist program designed to lower longer-term rates.

Before the auction, the Fed will sell $7 billion to $8 billion in the securities maturing between September 2015 and November 2015, Lederer noted.

Ten-year Treasury notes fell 6/32, their yields rising to 1.63 percent, but still near Wednesday’s low of 1.61 percent, its lowest since Sept. 7.

The benchmark yield has fallen almost 30 basis points from a four-month peak earlier this month, partly driven by strength in mortgage bonds following the Fed’s decision earlier this month to buy $40 billion of the securities a month.

Traders are pricing in expectations that the seven-year debt will sell at yields of about 1.0580 percent on Thursday, just above the 1.043 percent level the notes traded at in the secondary market.

The 30-year bond fell 15/32 in price, its yield rising to 2.81 percent from 2.78 percent late Wednesday.