U.S. bonds rally as selloff pauses; focus turns to 3-year note auction
TLT•U.S. Treasuries rallied Tuesday, with the 10-year yield down 5.1 basis points to 5.26%, as investors awaited a $58 billion 3-year note auction and inflation data. The auction’s expected yield was on track to be the highest for the sale since May 2006.
1. Treasury yields fall
U.S. Treasuries rebounded after the previous session’s sharp selloff, as investors assessed recent market moves ahead of next week’s inflation data. The 10-year yield fell 5.1 basis points to 5.26% after reaching a 24-year peak, while the 30-year yield declined 3.4 basis points to 5.631% following another 24-year high. The 2-year yield was down 4.6 basis points to 4.787%.
2. Auction in focus
Investors were looking ahead to Tuesday’s $58 billion 3-year note auction, with the expected yield on track to be the highest for the sale since May 2006. The 2-year/10-year yield spread narrowed to 47.5 basis points from 48.9 basis points late Monday, reversing some of the curve’s recent steepening.
3. Market factors
Yields also fell alongside oil prices and a rally in eurozone bonds, particularly French bonds. Analysts said the auction would follow lackluster receptions for 2-, 5- and 7-year note sales in late September; BMO’s Ian Lyngen noted that 10 of the last 13 3-year auctions stopped through, by an average of 0.6 basis points.
