Treasury 10-year yield reaches three-week high before auctions

Treasury 10-year note yields rose to a three-week high as the U.S. prepared to sell $72 billion of debt this week with the jobs market showing signs of recovery.

The U.S. will auction $32 billion in three-year notes tomorrow, $24 billion in 10-year notes the next day and $16 billion of 30-year bonds on May 9. The 10-year yield rose 11 basis points on May 3, the most since Sept. 14, after a report showed employment gained more than forecast in April and the unemployment rate fell to a four-year now.

“The good jobs report and the auctions are weighing on the market,” said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York, one of 21 primary dealers that trade with the Fed. “One decent number aside, not much has changed, as the economy is still weak and the Fed is still buying. We are nearing the top of the yield range and these cheaper levels should bring in decent demand to the auction process.”

The benchmark 10-year note yield rose three basis points, or 0.03 percentage point, to 1.77% as of 1:19 p.m. in New York, according to Bloomberg Bond Trader prices. The price of the 2% note due in February 2023 fell 10/32, or $3.13 per $1,000 face value, to 102 1/32. The yield reached the most since April 12.

Bond trading was closed in Europe and Asia for holidays.

Technical Levels

Benchmark yields traded above the 200-day moving average for the first time since April 12. The difference between yields for U.S. debt maturing in two- and 10-years widened to 1.56 percentage points, the most since April 10.

The $72 billion of debt sold this week comes as $59.6 billion of outstanding debt will be paid down and as the Federal Reserve is scheduled to buy as much as $12.3 billion in Treasuries this week.

Bidding has slowed at Treasury auctions this year, with the $721 billion in debt sales attracting an average of $3.01 in orders to buy per dollar of debt sold, compared with a record $3.15 in 2012, according to data released by the Treasury and compiled by Bloomberg.

“The auctions are going to fare pretty well because of the set-up we saw last week,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “There’s still demand for Treasury paper.”

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