U.S. Treasury Bonds Rise as 30-Year Auction Looms
U.S. Treasury bonds strengthened Thursday as buyers stepped in following a selloff in the prior session, though a looming 30-year bond auction kept the price gains in check.
The price swings came as government bonds on both sides of Atlantic have taken a heavy beating over the past few weeks after a strong run-up in prices. Growing concerns about lofty valuations have caused a rush out of bonds.
Some investors see the rout as a buying opportunity as they obtain much more attractive yields. The yield on the benchmark 10-year Treasury note closed Wednesday at its highest level in more than five months.
"We think value has been created in the bond market at these higher levels of yields," said Michael Collins, senior portfolio manager at Prudential Fixed Income, which has $560 billion assets under management.
Mr. Collins said "most of the damage" from the weekslong selloff "is done," though he cautioned that "the markets can always overshoot further" with thin liquidity magnifying the price moves.
In recent trading, the yield on the benchmark 10-year note was 2.265%, compared with 2.283% on Wednesday, according to Tradeweb.
Bond prices rise as their yields fall. The 10-year's yield has jumped from as lows as 1.897% as recently as April 20.
The $16 billion sale of 30-year Treasury bonds is due at 1 p.m. EDT Thursday, the last leg of this week's new debt supply.
Both the three-year and 10-year note auctions earlier this week drew strong demand. But traders were cautious over the 30-year bond sale because demand for the long bond has long been volatile.
In the weekslong rout, the 30-year Treasury bond, which had led a sharp price rally in the bond market since early 2014, has been the hardest hit.
The longer the maturity, the sharper a bond's price moves in response to a given change in its yield. The 30-year bond's yield has climbed over half of a percentage point since April 20, when the bond market rout took off.
On Thursday, the yield was 3.077%, compared with 3.072% Wednesday.
Investors said the weekslong decline in the bond market has been driven by the unwinding of trades betting on European government bond prices to rally.
These bets have ramped up, sending the 10-year German government bond's yield to near zero in late April, propelled by the European Central Bank's bond-buying program. Over the past few weeks, investors have rushed to unwind the crowded trade.
The yield on the 10-year German government bond yield was 0.7%, compared with 0.734% Wednesday, which was the highest closing level since Dec. 5.
The German yield had closed at a record low of 0.073% on April 20.
Many investors say bond yields wouldn't rise significantly from here, given the tepid economic growth outlook and tame inflation. The ECB just started its bond buying in March and it plans to continue buying bonds through September 2016.
On Thursday, a mixed round of U.S. data bolstered investors' expectations that the Federal Reserve would take its time in raising interest rates.
The number of Americans applying for first-time unemployment benefits decreased last week, a sign of broad health in the labor market. On the other hand, a gauge of U.S. business prices, known as the producer-price index, fell by 1.3% over the past 12 months through April, the biggest drop since 2010.
A day earlier, a report showed a flat reading for U.S. retail sales for April.