Yield on 30-year bond falls after auction (AP)
Thu, 11 Jun 2009 21:28:27 Etc/GM
Investors moved back into the Treasury market Thursday after a surprisingly strong auction of 30-year bonds, pulling yields down from multi-month highs.
Treasury yields are closely tied to interest rates on mortgages, and both have been rising for several weeks as investors worried about inflation. Freddie Mac said the average rate for a 30-year fixed home loan spiked to 5.59 percent this week, the highest in seven months, leading to a slowdown in refinancing activity.
The U.S. Treasury Department offered a yield of 4.72 percent to lure in buyers -- the highest yield offered at a 30-year bond auction since August 2007, but lower than the market anticipated.
The auction got plenty of bidders. The ratio of bids to bonds sold was 2.68 percent, much higher than the 2.14 ratio at last month's auction of 30-year bonds.
Demand from other countries appeared very strong. Indirect bidding, which usually consists largely of foreign bids, contributed to nearly half of the total bids accepted. Investors had grown concerned on Wednesday about foreign demand after a Russian central bank official said the nation was considering reducing its U.S. Treasury holdings.
Many investors decided Thursday that those fears were perhaps overblown.
"I don't think the foreigners are going to abandon the Treasury market," said John Spinello, bond strategist at Jefferies & Co. "They can't afford to abandon the Treasury market."
The 30-year bond rose in afternoon trading, sending its yield down to 4.69 percent. Ahead of the auction, its yield rose as high as 4.84 percent, its highest since October 2007.
The 10-year note also gained in price. Its yield -- which is most closely linked to mortgage rates -- fell to 3.86 percent after hitting 4.01 percent in earlier trading, the highest level since last October.
The Treasury Department auctioned a total of $65 billion in notes and bonds this week. Next week, it will not hold any auctions, so trading will likely be light and calm, Spinello said. The following week, though, could be a wild one as the government resumes its auctions.
In late trading Thursday, the 10-year Treasury note rose 25/32 to 94. Its yield fell to 3.86 percent from 3.96 percent late Wednesday.
The 30-year bond rose 1 6/32 to 92 28/32, pushing its yield down to 4.69 percent from 4.77 percent late Wednesday.
The two-year note rose 2/32 to 99 4/32, and its yield fell to 1.33 percent from 1.36 percent.
The yield on the three-month Treasury bill was flat at 0.17 percent. Its discount rate was 0.18 percent.
Borrowing costs between banks remain at record lows. The British Bankers' Association said the London Interbank Offered Rate, or Libor, on three-month loans in dollars edged lower by 0.01 percentage point to 0.63 percent.
source: http://biz.yahoo.com/ap/090611/us_credit_markets.html?.v=1