US Treasury-Yields climb as oil rises, dealers eye US 10-year auction
New York (Dec 9) US Treasury debt yields rose on Wednesday in generally thin volume, as oil prices rallied on lower U.S. crude oil storage figures and as dealers awaited the 10-year auction later in the session.
The U.S. 30-year bond yield, which moves inversely to the price, rose above 3.0 percent, while benchmark 10-year yields climbed to the day's peak of just under 2.6 percent. Yields were also higher on the front end of the curve as investors braced for a possible Federal Reserve interest rate hike next week.
Oil prices, which have been a factor this week in the Treasury market in the absence of major U.S. economic data, recouped some of their losses following better-than-expected U.S. crude inventory numbers.
That buoyed market sentiment a little bit and helped Treasury yields resume their march higher.
More importantly, market participants were gearing up for the U.S. 10-year auction on Wednesday afternoon, which is expected to be well-received given solid demand for U.S. three-year notes on Tuesday.
The U.S. government will sell $21 billion in reopened 10-year notes on Wednesday, and $13 billion in 30-year bonds on Thursday.
Analysts said dealers were effectively selling the long end of the curve to bump up the yield so as to buy 10-year notes at a lower price at the auction, a practice referred to as "concession."
"The 10-year should go okay since we had seen decent demand in the three-year auction yesterday," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York.
"We're building a little bit more of a concession going into the 10-year auction. That's what we have seen happening now."
In late morning trading, U.S. benchmark 10-year Treasury notes fell 4/32 in price to yield 2.251 percent, up from Tuesday's 2.222 percent.
The 30-year bond dropped 12/32 in price to yield 2.994 percent, up from 2.957 percent on Tuesday.
U.S. two-year Treasury notes meanwhile, were little changed in price, with a yield of 0.943 percent. Last Thursday, two-year yields hit 0.994 percent, their highest since May 2010.
Volume has been generally sparse, and December tends to be a relatively thin volume month.
"The point really is that there's not a lot going on from the overnight crowd," said CRT Capital in a research note.
"And we really don't expect too much. The presumption is that we're all on wait for the Fed and have that as pretty much a foregone conclusion."