10/07/2013 15:01:00

BOND REPORT: Treasurys Flat Ahead Of Auction, FOMC Minutes

By Ben Eisen, MarketWatch

NEW YORK (MarketWatch) -- Treasury prices were barely changed on Wednesday ahead of an auction of 10-year notes that may serve as an indicator of whether investors are stepping back into the market after a broad selloff.

The 10-year note (10_YEAR) yield, which moves opposite to price, rose slightly on the day to 2.642%. The 30-year bond (30_YEAR) yield fell slightly to 3.648% and the 5-year note (5_YEAR) yield fell slightly to 1.491%.

The Treasury Department will sell $21 billion in 10-year notes, following an exodus from the market over the last two months that pushed the benchmark note yield up roughly a full percentage point from its lowest levels of the year. Investors pulled record amounts out of bond funds as markets adjusted to the Federal Reserve's indications that it will begin scaling back its bond-purchase program, which has held yields down, later this year.

The auction follows a successful sale of $32 billion in 3-year notes (3_YEAR), but Wednesday's 10-year offering may be a more significant indicator of whether investors want to hold long-term Treasurys in this volatile-interest-rate environment.

The recent rise in rates, including a spike after Friday's nonfarm-payrolls report, may prompt some investors to find that government debt offers attractive yields.

"After a better-than-expected 3-year note auction and a retracement from the highs in yields, we are still heading into the $21 billion 10-year reopening at more attractive levels than pre-payrolls," George Goncalves, head of interest-rate strategy at Nomura Securities, in a note.

The sale comes ahead of the release of minutes from the Federal Open Market Committee's last meeting, which may provide further clues about how Fed members are thinking about the pace and timing of a reduction in bond purchases. Any insight from the Fed could induce further volatility.

"You have a pretty significant move in rates over the last couple months, and I think people are looking for validation of what's next," said Bill Hornbarger, chief investment strategist at Moneta Group. He added: "Everybody wants to get some continued clarification and continued color on what the Fed is thinking in terms of tapering."

Fed Chairman Ben Bernanke is also scheduled to make a public appearance on Wednesday afternoon.

The iShares 20+ Year Treasury Bond exchange-traded fund (TLT) fell 0.16% to $107.23 in early trade.

The stock market was little changed at its open. Prices for U.S. benchmark crude oil surged past $105 per barrel on Wednesday for the first time in over a year. Gold prices rose and the dollar dropped against rival currencies.

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(END) Dow Jones Newswires

July 10, 2013 10:01 ET (14:01 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

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