By Richard Leong
NEW YORK, July 9 (Reuters) - U.S. Treasuries prices were
little changed on Tuesday as investors prepared for a $32
billion three-year note sale, the first part of this week's $66
billion in coupon-bearing supply.
This week's supply is seen as an appetite gauge for
Treasuries after benchmark yields rose to near two-year highs on
Monday in the wake of an upbeat June U.S. jobs report.
'This week's auctions will be critical. Obviously there is
value at these levels, but we have to see how demand will come
in,' said Larry Milstein, head of government and agency trading
at R.W. Pressprich & Co in New York.
Some investors appeared willing to step back into Treasuries
as a bout of buying emerged on Monday after benchmark yields
climbed to 2.755 percent, a level not seen since August 2011.
Traders who wanted to book profits on their 'short' bets
against Treasuries were also buyers, analysts said.
A survey from J.P. Morgan Securities released on Tuesday
showed investors overall added longer-dated Treasuries for a
second week, but speculative types signaled they anticipated
yields to resume rising.
'We seem to have some level of stability here. The 2.75
percent level will be a pretty strong support level for the
10-years,' Milstein said.
The U.S. Treasury will sell $21 billion of 10-year supply on
Wednesday, followed by a $13 billion auction of
30-year bonds on Thursday.
Demand at recent Treasuries auctions has been mediocre at
best as bond yields here and abroad have surged in the past six
weeks on worries the Federal Reserve might pare its $85 billion
of monthly purchases of Treasuries and mortgage-backed
'The demand might be sloppy as investors are trying to piece
the puzzle of tapering,' said Sean Simko, head of fixed income
portfolio management at SEI Investments in Oaks, Pennsylvania.
Friday's data that showed stronger-than-expected hiring last
month supported the view the Fed might shrink its third round of
quantitative easing, known as QE3. The Fed intended this program
to lower mortgage rates and other long-term borrowing costs in a
bid to lower unemployment and boost the overall economy.
The central bank as part of the program on Tuesday bought
$3.15 billon in Treasuries that mature in August 2020 through
The latest QE3 purchase will be followed by the three-year
note auction at 1 p.m. (1700 GMT), which was on track to sell at
its highest yield since June 2011.
In 'when-issued' business, traders expected the latest
three-year issue due in July 2016 to sell at a
yield of 0.7140 percent, up from 0.581 percent last month.
On the open market, the 10-year Treasury note
was little changed in price with a yield of 2.638 percent, while
the 30-year bond was 8/32 lower, yielding 3.652
percent, up 1.6 basis points from late on Monday.
NEGATIVE REPO RATES
An omen of possible lukewarm bidding for this week's
Treasuries supply was in the repurchase agreement market where
traders seemed to be borrowing heavily against Treasuries in
anticipation of buying them cheaper later.
The interest rate on overnight repos backed by three-year
Treasuries was quoted at minus 1.25 percent to minus 2.00
percent after trading at minus 2.28 percent earlier.
Normally, Wall Street firms pay an interest rate - the repo
rate - to a bank or a money market fund in exchange for a
short-term cash loan (usually overnight). The dealers offer up
collateral for the loan - normally a Treasury bond.
There is a scarcity of Treasury securities right now because
Wall Street dealers and hedge funds have started to short these
securities. When traders short Treasuries, they are betting
prices will fall and yields will rise.
As a result, for a bank or a money fund that needs to invest
its cash to get their hands on a Treasury note, they now have to
accept a lower rate - or in some cases, a negative repo rate.
Thus, the bank or money fund, instead of being paid for lending
out cash overnight, is paying to hold the security.
(Additional reporting by Roseanne Briggen at IFR; Editing by
Nick Zieminski and Chris Reese)
((firstname.lastname@example.org)(+1 646 303 6313)(Reuters
Keywords: MARKETS USA BONDS/
(-------MARKET SNAPSHOT AT 11:55 a.m. EDT (1555 GMT)------- Sept T-Bond 133-13/32 (-03/32) Sept 10-Year note 125-13/32 (+04/32) Change vs Current Nyk yield Three-month bills 0.04 (unch) 0.041 Six-month bills 0.075 (unch) 0.076 Two-year note 100-01/32 (-) 0.367 Five-year note 99-13/32 (+01/32) 1.499 10-year note 92-11/32 (-01/32) 2.640 30-year bond 85-28/32 (-11/32) 3.656 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 16.75 (-0.50) U.S. 3-year dollar swap spread 18.00 (-1.25) U.S. 5-year dollar swap spread 18.00 (-1.00) U.S. 10-year dollar swap spread 23.00 (-1.25) U.S. 30-year dollar swap spread -1.00 (-2.00))
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