US bond yields slide after Treasury auction

U.S. sovereign bond and note yields slid slightly Wednesday amid a dip for U.S. stocks and after the Treasury Department sold $29 billion in seven-year notes at a high yield of 2.161 percent.

For the auction, the bid-to-cover ratio, an indicator of demand, was 2.34 versus a recent average of 2.46. Indirect bidders, which include major central banks, were awarded 47.1 percent against a recent average of 55 percent. Direct bidders, which include domestic money managers, took 14.1 percent.

Bonds had traded in a tight range ahead of the sale as oil prices continued to slide and stocks fell.

Seven-year notes yielded 2.1109 percent, down from a closing price of 2.117 percent. (Treasury yields move inversely to prices — see CNBC Explains)

Symbol
Yield
 
Change
US 3-MO
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US 2-YR
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US 5-YR
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US 10-YR
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US 30-YR
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Benchmark 10-year Treasury notes yielded 2.2925 percent, lower from a close of 2.307 percent.

Wednesday's Treasury auction follows sales of two-year notes and five-year notes on Monday and Tuesday, respectively, that met with tepid demand.

On Tuesday, two-year notes fell to their lowest level since April 2010, yielding an intraday high of 1.099 percent. Yields fell back slightly on Wednesday to 1.792 percent.

"The U.S. interest rate market is gradually shifting to pricing in more tightening in the coming years which we expect to continue. It is also prompting a further bear flattening of the U.S. yield curve," Lee Hardman, a currency analyst at Bank of Tokyo-Mitsubishi, said in a report on Wednesday.

"The spread between the two- and 10-year U.S. Treasury yields has narrowed and is moving closer to technical support at just below 1.20 percent, which is where lows going back to 2008 are located. The ongoing adjustment higher for U.S. yields should continue to provide support for a stronger U.S. dollar in 2016," he added.

Oil price boost short-lived

Oil prices were in focus once again on Wednesday, with front-month Brent and U.S. West Texas Intermediate crude futures falling to around $36.50 per barrel, as the market remained under pressure.

A Citigroup analyst warned that any upcoming oil price boost would be short-lived.

"We do have a current physical supply-demand surplus. That fits with the price theme … that prices will be lower for longer," Tim Evans, an energy analyst at the bank, told CNBC on Wednesday.

On the data front, November pending home sales fell 0.9 percent. Weekly crude oil inventories showed a build of 2.8 million barrels.

Global economic growth will be "disappointing" in 2016, the head of the International Monetary Fund (IMF) said in a guest article for German newspaper, Handelsblatt, published on Wednesday.

IMF Managing Director Christine Lagarde said that the prospect of rising interest rates in the U.S. and an economic slowdown in China were increasing economic uncertainty worldwide.

Saudi Arabia reported a record deficit and announced plans to cut public spending and increase revenues from non-oil sources this week, casting light on the impact from low prices on the world's top oil exporter.

"If my inbox is anything to judge by, it's Saudi Arabia's austerity program which is driving most interest this week. That's a reminder that even the world's lowest-cost oil producer relies on high(er) prices to balance its budget and current prices don't come anywhere close," Kit Juckes, a strategist at Societe Generale, said in a research note on Wednesday.

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