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U.S. 10-Year Treasury Notes Fall After $13 Billion Auction

May 11 (Bloomberg) -- U.S. 10-year Treasuries fell the most in more than a week after the government sold $13 billion of the securities, adding supply at a time when the Federal Reserve is signaling that it may raise interest rates further.

Investors pushed yields higher even after a Commerce Department report showed retail sales in April rose less than forecast. Fed policy makers yesterday boosted their target rate to 5 percent from 4.75 percent and said ``further policy firming may yet be needed.''

``Since the Fed's statement, the market has been left with a bearish tone,'' said Mustafa Chowdhury, head of U.S. interest- rate research at Deutsche Bank AG in New York. The firm is one of the 22 primary dealers of U.S. government securities that are obligated to bid at the auctions. ``The prospect of more rate increases is significant for investors.''

The yield on the benchmark 10-year note rose 5 basis points, or 0.05 percentage point, to 5.17 percent at 1:26 p.m. in New York, according to bond broker Cantor Fitzgerald LP. Yields move inversely to bond prices. The price of the 4 1/2 percent security due in February 2016 fell almost 3/8, or $3.75 per $1,000 face amount, to 94 7/8, the biggest drop since May 1.

The securities sold today drew a yield of 5.14, the highest yield since May 2002. For every $1 sold, there was $2.53 worth of bids, down from $2.87 at March's sale. Indirect bidders, a group that includes foreign central banks, bought 30.7 percent of the securities. Since the Treasury began releasing such data in May 2003, the share of 10-year notes won by indirect bidders has ranged from 2.9 percent to 54.7 percent.

Ten-year Treasuries have lost 4.3 percent this year, compared with a gain of 1.4 percent at this point in 2005, according to Merrill Lynch & Co. index data.

http://en.wikipedia.org/wiki/Treasury_security

Treasury notes (or T-Notes) mature in one to ten years. They have a coupon payment every six months, and are commonly issued with maturities dates of 2, 3, 5 or 10 years, for denominations from $1,000 to $1,000,000. T-Notes and T-Bonds are quoted on the secondary market at percentage of par in thirty-seconds of a point. Thus, for example, a quote of 95.7 on a note indicates that it is trading at a discount: $952.19 for a $1,000 bond.

The 10-year Treasury note has become the security most frequently quoted when discussing the performance of the U.S. government-bond market and is used to convey the market's take on longer-term macroeconomic expectations. It is also important to the U.S. mortgage market, which uses the yield on the 10-year Treasury note as a benchmark for setting mortgage interest rates.

posted by avilella  # 10:44 PM