BOND REPORT: Treasurys Weaken After Poorly Received Auction

By William Watts, MarketWatch Features Dow Jones Newswires

Treasury prices fell Tuesday, pushing up yields, with weakness attributed to a poorly received auction of seven-year notes and concerns over federal budget negotiations.

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What are yields doing?

The yield on the 10-year Treasury note rose 1.1 basis points to 2.338%, while the yield on the two-year note rose 1.4 basis points to 1.758%. The yield on the 30-year Treasury bond rose 0.2 basis points to 2.767%.

Yields and debt prices move in opposite directions.

What drove the market?

An auction of $28 billion in seven-year Treasury notes saw weak demand.

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Top congressional Democrats pulled out of a meeting with President Donald Trump after he tweeted that he didn't see prospects for a deal on government spending. The government faces a Dec. 8 funding deadline.

Fed Gov. Jerome Powell, Trump's pick to replace Federal Reserve Chairwoman Janet Yellen at the helm of the central bank when her term expires in February, made no waves in a Senate confirmation hearing. Powell largely reassured lawmakers he would follow a path of gradual rate rises and a slow unwind of the central bank's balance sheet laid out by Yellen.

A North Korean missile test, the first in more than two months, failed to rattle investors, providing little in the way of flight-to-safety interest in Treasurys and other assets perceived as havens.

See:Live blog recap of Jerome Powell confirmation hearing (http://blogs.marketwatch.com/capitolreport/2017/11/28/live-blog-and-video-of-jerome-powell-confirmation-hearing/)

What are analysts saying?

The seven-year note sale was "an ugly auction," said Thomas Simons, senior money market economist at Jefferies, in a note.

"The big buyers that were around in August and September have been noticeably absent in October and November. Normally the 7-year is a good bet to rally into month-end, but dealers are stuffed with paper after this auction so it should actually see further selling pressure," he said.

While Powell seemed more comfortable in front of lawmakers than Yellen or her predecessor, Ben Bernanke, his overall message was consistent with his and some of Yellen's recent musings, said Tom Porcelli, chief U.S. economist at RBC Capital Markets, in a note.

"On the eventual size of the balance sheet, for example, Powell was quick to highlight some of the vagaries at play that will dictate how much it will shrink, namely demand for reserves (an unknown)," he said. "All of this is to say, much as we have all thought, do not expect any significant divergences in approach as he kicks off his chairmanship."

What did the data show?

A gauge of U.S. consumer confidence rose to 129.5 in October, its highest reading since 2000 (http://www.marketwatch.com/story/feeling-good-consumer-confidence-hits-17-year-high-2017-11-28).

The U.S. trade deficit in goods jumped 6.5% in October to $68.3 billion (http://www.marketwatch.com/story/us-trade-deficit-surges-in-october-advanced-report-shows-2017-11-28), significantly larger than the $65 billion gap produced by a MarketWatch survey of economists.

The S&P/Case-Shiller national index of house prices rose a seasonally adjusted 0.7% in the three-month period ending in September (http://www.marketwatch.com/story/house-prices-rise-at-fastest-pace-since-june-2014-case-shiller-says-2017-11-28), and was up 6.2% compared with the same period a year ago.

See:MarketWatch Economic Calendar (http://www.marketwatch.com/economy-politics/calendars/economic)

(http://www.marketwatch.com/economy-politics/calendars/economic)In a speech, New York Fed President William Dudley called for the public reporting of Treasury market transactions (http://www.marketwatch.com/story/ny-fed-chief-calls-for-public-reporting-of-treasury-market-transactions-2017-11-28).

(END) Dow Jones Newswires

November 28, 2017 17:46 ET (22:46 GMT)