NEW YORK -- U.S. government bond prices fell Tuesday as investors struggled to digest a new load of securities hitting the market and braced for more supply later in the week.
The sale of $8 billion worth of new 20-year Treasury Inflation-Protected Securities (TIPS) went well but it was only the first of this week's three auctions, all of which have been weighing on Treasuries prices.
Traders were also making room for the Treasury's auction of $20 billion in two-year notes Wednesday and $13 billion in five-year debt Thursday.
"It's a supply glut this week," said a trader at a primary dealer in New York.
Benchmark 10-year notes were down 12/32 in price for a yield of 4.81 percent, versus 4.76 percent late on Monday.
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The area around the 4.80 percent in 10-year yields has been a key technical support area. It briefly broke above there last week for the first time since late October amid a wave of stronger-than-expected economic data.
Aside from this week's flood of supply, traders will have to prepare for the Treasury's quarterly refunding, in which three-, 10- and 30-year bonds will be auctioned in two weeks' time.
The market was also expected to keep an eye on the oil market, where U.S. crude futures settled up more than $2 to $55.04, though dealers said it was having no effect on bond trade during Tuesday's session.
Some traders had seen last week's fall in crude prices below $50 a barrel as a negative development for bonds since it would free up cash for consumers to spend on other items besides fuel and energy, and thus boost economic growth.
IN SUPPLY
The TIPS were sold at a bid-to-cover ratio, an indication of demand, of 2.05, compared with 1.48 in a January 2006 TIPS auction. The proportion of indirect bidders, who include foreign central banks, was 58.7 percent, compared with 56.1 percent in the January 2006 auction.
Also on Tuesday, the Richmond Fed said its regional manufacturing index fell to minus 11 in January, below a median forecast of 2 among analysts polled by Reuters.
Traders said the report held little sway, given that most major economic releases recently have been surprisingly strong. Meanwhile, along with the other factors, a rising stock market also helped undermine investor interest in fixed income.
"It's supply, some money going the equities route for today specifically and the market shrugging off weak data because the stronger reports have overshadowed these smaller reports," said George Goncalves, Treasury and agency trading strategist with Banc of America Securities in New York.
In cash trading, two-year notes were down 2/32 in price for a yield of 4.95 percent, versus 4.92 percent late on Monday, while five-year debt was down 5/32 in price, yielding 4.81 percent.
The 30-year bond was down 24/32 in price, pushing the yield up to 4.90 percent.
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