Investors prepare for auctions

Investors prepare for auctions
By Jennifer Hughes in New York, Joanna Chung in London and,David Turner in Tokyo
Published: February 8 2006 02:00 | Last updated: February 8 2006 02:00 Copyright by the Financial Times

US Treasuries fell and yields rose as investors prepared for the first of the Treasury's three quarterly refunding auctions this week.

Three-year notes worth $21bn were on the block, up from the $18bn offered at the last sale. Today, the Treasury will sell $13bn in 10-year notes and tomorrow $14bn in 30-year bonds.

By midday in New York, an hour before the auction deadline, existing three-year notes yielded 4.588 per cent, up 0.9bp.

"Given the firmer tone of equities, the 3-year note [yield] could drift higher right up to the bidding deadline," said Brian Robinson at 4Cast consultancy.

Kim Rupert, at ActionEconomics, said demand might be limited if investors held back ahead of Thursday's long bond sale. "The market may withhold judgment on the refunding until statistics on the bond are seen," she said. Ten-year notes yielded 4.571 per cent, up 2.4bp, while the current benchmark 30-year yield was up 2.9bp at 4.654 per cent. The "when issued" market for new long bonds indicated yields about 13bp lower.

Eurozone government bonds lost earlier gains and followed the US market lower. The market came under pressure from an unexpected large supply of 30-year bonds from Greece. In late trading, the yield on the 10-year Bund was up 4.8bp to 3.514 per cent while the 30-year Bund yield added 3.6bp to 3.775 per cent. In the UK, the Debt Management Office, which yesterday sold £1bn of index-linked gilts maturing in 2017, announced that it would auction, as many analysts expected, £2.5bn of 50-year conventional gilts next week.

Despite the historically low level of yields, the sale is likely to meet strong demand from pension funds seeking assets to match their liabilities. The yield on the 10-year gilt rose 2.7bp to 4.220 per cent. The yield on the 50-year gilt was up 5.4bp to 3.813 per cent.

The yield on the benchmark 10-year Japanese government bond rose 1.5bp to 1.570 per cent, pushed up by an overnight rise in the US Treasury yield. Trading was thin ahead of a press conference from Toshihiko Fukui, governor of the Bank of Japan. Analysts see only an outside chance that he will announce an end to the BoJ's quantitative easing policy, a precursor to raising the interest rate. But the governor might raise the bullishness of his comments, which would provoke a repeat of dovish comments from government ministers