With a tepid response to the latest U.S. Treasury auction on long-term debt, Treasuries exchange traded funds began to pullback late Thursday, foreshadowing the potentially changing sentiment in the fixed-income market.
The iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) reversed course mid-Thursday and ended down 0.4%. TLT has gained 11.1% year-to-date.
After dipping to its lowest level in 11 months early Thursday, 30-year Treasury bond yields ended the day at around 3.43%. The yields on the long-term debt have declined over 50 basis points since the start of the year.
The Treasury Department sold off $16 billion in long-term bonds to tepid demand at a yield of 3.440%, or 3 basis points above market levels, reports Ben Eisen for MarketWatch.
“It seemed as though people bought in advance in of the auction,” Larry Milstein, managing director of government and agency trading at R.W. Pressprich & Co., said in the article. “You had a pretty decent run-up into it and gave some back after the auction.”
Money managers reduced demand for long-term Treasuries, purchasing 8.4% of the sale Thursday, compared to 16.2% of the last four auctions. Bidders lowered buy offers to 2.09 times the amount of debt for sale, compared to average 2.27 times.
Observers contribute the run up in Treasury prices this year to technical factors, such as increased purchases from pension funds and covering short positions. [Renewed Demand for Treasuries Props Up Bond ETFs]
“Even though the biggest buyer of Treasuries is slowly and surely fading away, there has been no shortage of players — from pension funds to central banks — who have jumped in to fill the gaps,” Jason Rogan, managing director of U.S. government trading at Guggenheim Securities LLC., said in a Bloomberg article.
Additionally, some point to the weakening U.S. growth outlook as a catalyst for safe-haven demand.
“We are now starting from a negative first-quarter GDP number after revisions — so growth is really going to have to pick up to get us to everyone’s year-end bogey of 3%.” Tom Tucci, managing director and head of Treasury trading at CIBC World Markets Corp., said.
While debt on the long-end of the yield curve took a hit, short-duration assets held up. The iShares 3-7 Year Treasury Bond ETF (NYSEArca: IEI) and iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) both gained about 0.1% Thursday.
iShares 20+ Year Treasury Bond ETF
For more information on Treasuries, visit our Treasury bonds category.
Max Chen contributed to this article. Tom Lydon’s clients own shares of TLT.