Treasury Prices Fall Ahead of $55 Billion Auction

U.S. Treasury debt prices fell Monday as traders cut prices ahead of billions of dollars of new supply and as stock market gains and a restructured bailout package for American International Group damped investors' appetite for safe-haven government debt.


The U.S. Treasury will sell $55 billion in three-, 10- and re-opened 30-year bonds this week with the first of the three auctions set for 11:30 a.m..

The amount to be auctioned is significantly above the $18 billion refunding in November of last year.

The government needs the additional funds to fund various programs intended to revive the struggling financial industry and to compensate for reduced tax revenues.

U.S fixed-income markets will close early at 2:00 p.m. EST ahead of Veterans Day on Tuesday when U.S. fixed-income markets will close to observe the holiday.

"The bond market is focused on an early closed at 2 p.m., a 3-year auction, and a holiday tomorrow," said Tom Di Galoma, Treasuries strategist at Jefferies & Co in New York. "The three-year supply should certainly be an issue for the market as the entire refunding will be this week."

Investors appeared to be showing a revived preference for stocks over safe-haven government debt after China, the world's fourth largest economy, said it had approved $586 billion in new government spending between now and 2010, focused largely on infrastructure and social projects.

Meanwhile, shares of American International Group rose more than 25 percent to $2.66 after news the Federal Reserve said it would buy $40 billion of shares in the insurer as part of a restructured bail-out package.

Equity markets around the world jumped as the prospect for recharged growth tempered fears about a deep global recession, with Japan's Nikkei rising nearly 6 percent overnight, and benchmark indexes up about 3 percent or more in Europe.

On Wall Street, stocks opened higher.

"The market is generally losing its safe-haven bid due to global stocks rebounding," Di Galoma said. "Ten-year yields could trade near 3.95 percent to 4 percent this week and the two- to 10-year curve should steepen with supply."

In morning trade, benchmark 10-year Treasury notes fell 5/32 in price, their yields rising to 3.82 percent from 3.79 percent late Friday, while 2-year notes slipped 2/32, their yields rising to 1.37 percent from 1.34 percent on Friday.

DiGaloma said the curve steepening could fade after the refunding is complete. The Treasury will sell 10-year notes on Wednesday and re-opened 30-year bonds on Thursday.

On Friday, Treasuries prices retreated as investors looked for bargains among stocks priced at multiyear lows after a U.S. payrolls shed 240,000 jobs in October, the tenth month in a row when payrolls shed jobs.

Analysts said the weak October employment data, combined with downward revisions to two previous months' jobs figures pointed to further interest-rate cuts by the Federal Reserve.

Five-year Treasury notes fell 6/32 in price, their yields rising to 2.61 percent from 2.56 percent Friday, while the 30-year bond slipped 3/32, its yield rising to 4.275 percent from 4.20 percent.