Treasurys Edge Lower on New Debt Supply

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bonds edged lower Tuesday as investors prepared for large bond sale from British American Tobacco PLC and the first of this week's Treasury note auctions.

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In recent trading, the yield on the 10-year Treasury note was 2.267%, according to Tradeweb, compared with 2.258% Monday. Yields rise when bond prices fall.

BAT is poised to sell at least $15 billion of bonds to help fund its purchase of the remainder of Reynolds American Inc. it didn't already own, investors said. That puts it in range of AT&T's $22.5 billion issuance last month, which was the biggest U.S. corporate-bond deal of the year.

Large corporate-debt sales can sometimes weigh on Treasurys as underwriters sell government debt to neutralize unwanted swings in interest rates and fund managers look to free up cash to absorb the new bonds.

Adding to the modest pressure on the market, this week's Treasury debt auctions were set to kick off Tuesday with a $24 billion sale of three-year notes. A $23 billion sale of 10-year notes is set for Wednesday, while a $15 billion sale of 30-year bonds is scheduled for Thursday.

Treasurys are still caught in a tight trading range. For the past three weeks, the 10-year yield has mostly drifted between 2.25% and 2.3% -- well below the 2.6% level it reached in March, though above the 2.14% level it touched in June.

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Investors and analysts say yields are likely to remain at relatively low levels unless inflation pick ups and move closer to the Federal Reserve's 2% annual target. At the same time, the threats of inflation rising and major central banks responding with tighter monetary policies have kept yields comfortably above the historic lows they reached last year.

"The market has obviously become very comfortable," said Thomas Roth, managing director in the rates trading group at MUFG Securities Americas Inc. There is relatively little that could change the outlook for investors at this point except for better inflation data, he added.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

U.S. government bonds pulled back Tuesday as a large volume of new debt sales weighed on the prices of outstanding bonds.

The yield on the 10-year Treasury note settled at 2.282%, compared with 2.258% Monday. Yields rise when bond prices fall.

British American Tobacco PLC sold $17.25 billion of bonds Tuesday to help fund its purchase of the remainder of Reynolds American Inc. it didn't already own. That marked the second-largest U.S. corporate bond deal of the year behind AT&T's $22.5 billion issuance last month.

Large corporate-debt sales can sometimes weigh on Treasurys as underwriters sell government debt to neutralize unwanted swings in interest rates and fund managers look to free up cash to absorb the new bonds.

Adding to the modest pressure on the market was a $24 billion sale of three-year Treasury notes and data that showed job openings climbed to a record high at the end of June, indicating strong demand for new workers. Investors were also preparing for a $23 billion sale of 10-year Treasury notes Wednesday and $15 billion of 30-year bonds Thursday.

Treasurys were unusually active following the 3 p.m. settlement, as investors bought safe-haven assets and the 10-year yield fell to around 2.26% after President Donald Trump said he would respond to additional threats from North Korea with "fire and fury."

Treasurys are still caught in a tight trading range. For the past three weeks, the 10-year yield has mostly drifted between 2.25% and 2.3% -- well below the 2.6% level it reached in March, though above the 2.14% level it touched in June.

Investors and analysts say yields are likely to remain at relatively low levels unless inflation picks up and moves closer to the Federal Reserve's 2% annual target. At the same time, the threats of inflation rising and major central banks responding with tighter monetary policies have kept yields comfortably above the historic lows they reached last year.

"The market has obviously become very comfortable," said Thomas Roth, managing director in the rates trading group at MUFG Securities Americas Inc. There is relatively little that could change the outlook for investors at this point except for better inflation data, he added.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

August 08, 2017 18:24 ET (22:24 GMT)