Treasury Department auctions $24B of 3-year notes at a high yield of 1.271%

U.S. sovereign bonds declined on Monday, following European and Asian bonds lower as global markets prepare for a hike in interest rates by the U.S. Federal Reserve next month.

The Treasury Department auctioned $24 billion in three-year notes at a high yield of 1.271 percent, which was the highest since April 2011. The bid-to-cover ratio, an indicator of demand, was 2.82, the weakest since Oct. 2009.

Indirect bidders, which include major central banks, were awarded 40.8 percent. Direct bidders, which includes domestic money managers, bought 15.1 percent.

Three-year note yields spiked to 1.24 percent after the announcement, near the session's high. The maturity was last flat with the yield at 1.22 percent, a fresh session low.

Yields on benchmark 10-year Treasury notes rose to 2.34 percent on Monday, up from 2.333 percent. Bond prices and yields move inversely.

Thirty-year Treasury bonds yielded 3.10 percent, up from 3.090 percent.

Malaysian, Indonesian and Singaporean bonds underperformed early in the day, while bonds across Europe, including "safe-haven" German bunds continued to fall later in the day.


The Fed is viewed as more likely to hike interest rates next month, since Friday's figures showed that nonfarm payrolls increased by 271,000 in October — the largest gain since December 2014. The unemployment rate fell to 5.0 percent — the lowest since April 2008.

"The broad-based strength of the U.S. employment report for October has prompted a significant reassessment of the prospects for monetary policy in the U.S. over the next few years, putting upward pressure on Treasury yields in the process," Capital Economics said in a research note on Friday.

"Nonetheless, we think investors are still underestimating the extent to which the federal funds rate will rise over the next couple of years and think the sell-off in the bond market has further to go."

As the Fed's December meeting looms, speeches from its officials will receive special attention from markets. The first up is Boston Fed President Eric Rosengren, on Monday.

"Rosengren has previously stated that he believed that 2 percent growth would be needed for rate lift-off this year. We expect him to shift his focus slightly and look through the transitory weakness in third quarter GDP (gross domestic product) data, focusing instead on the underlying health of the domestic economy," said Barclays.

271,000 reasons to hike...
271,000 reasons to hike...

The Treasury will auction $24 billion in 10-year notes on Tuesday and $16 billion in 30-year bonds on Thursday.

In international news, the OECD has cut its world growth forecast to around 2.9 percent for this year. That's down from the 3.0 percent forecast in September and the 3.1 percent estimated in June.

The U.S. is seen posting growth of 2.4-2.5 percent each year between 2014 and 2017.

China's growth is seen declining to 6.8 percent in 2015 and continuing to fall in both 2016 and 2017. This adds to signs of weakness from the world's second-biggest economy, which released weak trade figures on Monday.

October exports fell 6.9 percent in October, year-on-year, down for a fourth month. Imports slipped 18.8 percent, leaving China with a record high trade surplus of $61.6 billion.

Oil prices rose as the U.S. dollar moved back from last week's peak, trading down 0.2 percent against a basket of currencies on Monday.

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CORRECTION: This story has been updated to reflect the U.S. Treasury will sell $24 billion in 10-year notes on Tuesday.