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U.S. Treasuries prices rose on Wednesday, with the 30-year bond gaining over a point after dealers paid a higher-than-expected price in an auction of $20 billion of 10-year notes.
Bonds extended early gains on news of the auction results. Dealers said the high yield in the auction of reopened notes was below where when-issued 10-year yields were trading, indicating they were not aggressively pushing for low prices.
The sale boosted optimism over the results for an auction of $12 billion of reopened 30-year notes on Thursday.
"It shows that there is a lot of cash on the sidelines that investors want to put to work," said Jeff Given, portfolio manager for fixed income with MFC Global Investment Management in Boston, adding "if you have this much demand in a 10-year security then you are probably going to have similar demand in the auction of 30-years tomorrow."
Benchmark 10-year Treasury notes US10YT=RR were trading 19/32 higher in price to yield 3.19 percent, down from 3.26 percent late on Tuesday, while the 30-year bond US30YT=RR was 1-5/32 higher to yield 4.01 percent from 4.07 percent.
Wednesday's auction was the third of four auctions for a total of $78 billion of U.S. government securities this week.
Bonds have rallied in seven of the last eight weeks, creating a challenge for auctions in a market that appears expensive. But bonds are still benefiting from investors eager to secure yields in an uncertain economic environment.
"There is so much money that needs to be invested that as innately bearish as I am on the Treasury market, I think this hoard of cash is going to keep a bid in for some time," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.
Ideas vary on the sources of the "hoard of cash" in search of yields, from money still sitting in cash after last year's financial markets meltdown, to aging baby boomers making a transition from the relative risk of stocks to the certainty of fixed-income yields.
The post-crisis view has been supported by data on money market funds, which are relatively low yielding, especially now with the Federal Reserve benchmark interest rate near zero.
Total money market mutual fund assets fell $53.52 billion to $3.429 trillion, according to data released last Thursday by the Investment Company Institute for its latest week of reporting.
In other trade, two-year Treasury notes US2YT=RR were trading 2/32 higher in price to yield 0.87 percent, down from 0.91 percent late on Tuesday. (Additional reporting by Burton Frierson; Editing by James Dalgleish)
Tags: Bonds, Rise, US, USA