Treasuries end advance as U.S. prepares debt sales amid shutdown

Treasuries snapped a two-day advance as the U.S. prepared to auction $64 billion of notes and bonds next week and the partial shutdown of the government persisted for a fourth day without signs of ending.

Benchmark 10-year note yields rose from almost a seven-week low, trading in the tightest weekly range in almost six months. One-month bill rates matched the highest level since 2009. House Speaker John Boehner tried to unite Republicans on a plan to reopen the government, raise the debt limit and achieve as many party priorities as possible. The Treasury has said it will exhaust measures to avoid exceeding the borrowing limit Oct. 17.

“Supply is a factor and will be a factor,” said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc., one of 21 primary dealers that trade with the Federal Reserve. “We’re just careening forward, waiting for news out of Washington.”

Ten-year U.S. yields climbed five basis points, or 0.05 percentage point, to 2.66% at 1:20 p.m. New York time, Bloomberg Bond Trader data show. The price of the 2.5% debt due August 2023 fell 14/32, or $4.38 per $1,000 face amount, to 98 21/32. The yields have traded this week between 2.66% and 2.58%, the narrowest range since April. The bottom of the range was the lowest level since Aug. 12.

Rates on Treasury bills that mature Oct. 24 traded at 0.14% today, from negative 0.01% on Sept. 27, as investors demanded extra compensation for the risk of holding the securities.

Curve Inversion

Money managers are getting out of Treasuries maturing closest to the debt-ceiling deadline and buying longer-maturity bills, yields indicate. One-month rates touched 0.19% today, matching a 45-month high reached in November 2012, while the rate on three-month bills was 0.02%, the biggest inversion of the spread since September 2008.

The U.S. will auction $30 billion of three-year notes on Oct. 8, $21 billion of 10-year debt on Oct. 9 and $13 billion of 30-year bonds on Oct. 10.

Concern about the looming debt-ceiling deadline may grow next week as the Treasury sells the debt, said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee.

“You’re always going to get more tense the closer you get” to a deadline, Vogel said. “I don’t think we’ll have a great read on that until we’re through the 10-year auction.”

House Republicans are divided between those who are insisting on confrontation over the nation’s 2010 health-care law, Obama’s signature legislative achievement, and those who say they would support Senate Democrats’ spending bill. That measure would end the shutdown without conditions attached. Boehner told reporters today the way to reopen the government is for Democrats to negotiate and accept changes to the health law.

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