Treasuries reverse in front of auction

Treasuries rose for the first time in four days as the backup in yields raised the allure of the $21 billion in 10-year notes to be sold today at auction.

Yields on the benchmark securities had climbed to a four- week high of 2.66 percent, compared with a yield of 2.61 percent at the last sale of the maturity on May 7. Traders are willing to pay to borrow the notes in the repurchase-agreement market in exchange for lending cash overnight for the most actively traded 10-year maturity, with rates opening today at negative 2.90 percent, according to data from ICAP Plc tracked by Bloomberg.

“Our market got a bit overdone on the downside,” said Brian Edmonds, head of interest-rates trading in New York at the primary dealer Cantor Fitzgerald LP. “Globally, yields are not rising, so there’s no reason for us to follow suit. There’s plenty of demand out there.”

The 10-year note maturing in May 2024 yielded 2.62 percent, down two basis points, or 0.02 percentage point, at 11:13 a.m. New York time, according to Bloomberg Bond Trader data. The price of the 2.5 percent notes rose 6/32, or $1.88 per $1,000 face value, to 98 30/32. The 2.66 percent yield was the highest since May 12.

The 10-year notes being sold today yielded 2.64 percent in pre-auction trading. Investors at the previous 10-year auction in May bid for 2.63 times the amount of debt available, down from 2.76 times on April 9.

Extra yield

Demand for Treasuries was supported as the extra yield that benchmark 10-year notes offer over their G-7 counterparts was at 69 basis points, after rising to 71 basis points yesterday, the most since April 2010. Yields on bonds in Europe dropped last week after European Central Bank policy makers unveiled an unprecedented stimulus package.

“People are playing the market from a defensive stance and buying Treasuries,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Ten-year yields got as high as 2.66 percent -- that might have brought in sidelined investors looking to take advantage of higher yields.”

Treasuries returned 2.6 percent this year, according to the Bloomberg U.S. Treasury Bond Index. The Bloomberg Global Developed Sovereign Bond Index has returned 3.7 percent this year, compared with a loss of 4.6 percent in 2013.

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