Bond Report: Treasury yields come off session lows after lackluster bond auction

Treasury yields came off their intraday lows Thursday after sloppy results for a bond auction weighed on trading for government paper.

The 10-year Treasury note yield

TMUBMUSD10Y, +1.35%

 was mostly unchanged at 2.731%, after bouncing off a session low at 2.680%, while the two-year note yield

TMUBMUSD02Y, +0.80%

  was mostly flat at 2.565%.

The 30-year bond yield

TMUBMUSD30Y, +2.14%

 rose 2.6 basis points to 3.051%, logging its fifth straight session of yield gains. Bond prices move in the opposite direction of yields.

An auction for the 30-year bond drew tepid demand from investors, capping off a week of debt auctions that saw mixed results. The increase in auction sizes since last February have contributed to messier debt sales, which some say could push yields higher as investors struggle to make room for incoming supply. But analysts said market participants may have been wary of buying bonds before Fed Chairman Jerome Powell’s discussion on Thursday.

“The combination of the 30-year reopening at the same time Chair Powell was commenting on monetary policy surely skewed the results somewhat,” wrote Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets.

Powell said in a moderated discussion that the balance sheet should be “substantially smaller.” He also said he didn’t see any signs of a slowdown in the U.S., though he wanted to watch the impact of weaker global growth. This comes after the central bank released the minutes from its December meeting, which showed dissent within the Fed’s rate-setting committee over the appropriate pace of rate increases.

Market participants still have other speeches from senior Fed officials to digest, including one from the Fed’s No. 2, Richard Clarida, who will speak to the Money Marketeers of New York University at 5:30 p.m.

Adding to the bearish tone in the bond market, the Dow Jones Industrial Average

DJIA, +0.51%

  and the SP 500

SPX, +0.45%

 posted gains for a fifth session in a row. The recent rally in risk assets has dampened appetite for haven investments.

“The risk-on, risk-off trade is feeding into the bond market. Until something changes, I would expect that to continue,” Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson, told MarketWatch.

On the data front, jobless claims for the week ending in Jan. 5 fell to a one-month low of 216,000, underlining the labor market’s strength, one of the few bright spots for the U.S. economy.

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Sunny Oh is a MarketWatch fixed-income reporter based in New York.

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