Bonds slide on earnings, supply worries
Government debt prices retreat on strong earnings and profit taking from yesterday's rally.
NEW YORK (Reuters) -- U.S. Treasury prices slid on Wednesday, as solid earnings reports and the shadow of next week's supply prompted investors to take profits from the previous day's gains.
Tuesday's price gains were prompted by Federal Reserve Chairman Ben Bernanke, who signaled a period of economic weakness and low interest rates but also quelled inflation fears.
"It's just a matter of some positions being unwound and some profit-taking," said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York. "With stocks somewhat stable today, we gave back some of yesterday's rally," he said.
Benchmark 10-year Treasury prices were last seen lower by 18/32 to yield 3.55%, up from Tuesday's closing yield of 3.48%. Thirty-year bonds fell a full point to yield 4.45 %, compared with the previous day's close of 4.39%.
"You're seeing good earnings come out -- you have flow to the better side of economic growth, or at least not as drastic a downturn as people feared," said Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania.
"It's an economic outlook that is less ominous than it was two weeks ago, and that makes people less inclined to chase the safety of government bonds," Schultz said.
This does not bode well for next week's debt sales. The Treasury department may auction up to $113 billion in new debt next week, according to William O'Donnell, chief U.S. Treasury strategist at RBS Securities.
The Treasury is expected to issue $2 trillion in new debt this year. Demand at previous auctions has been robust, despite some concerns that the market's appetite for Treasurys will soon be sated.
Supply anxiety is part of the source of today's losses, said Klingman, and "the market could probably back up a little more" so auctioned bonds will sell for a lower price.
"The dealers would probably like to see higher levels to buy bonds into," said Schultz, "but if earnings continue at this pace, you will probably see a further pullback on the bond side as we get more evidence that things weren't as bad as people feared."