Treasurys dip on China rate hike

Posted Dec. 27, 2010 at 9:55 a.m.

Treasury prices picked up where they left off before Christmas: heading lower.

Investors sent bond prices down just a bit Monday, after a surprise interest rate hike in China and before a $99 billion auction of long-term government notes scheduled for this week.

The yield on the benchmark 10-year note rose to 3.4 percent. The 30-year bond yield held steady at 4.47 percent.

The yield on the 2-year note was even at 0.61 percent, and the 5-year note headed higher to 2.09 percent. Treasury prices and yields move in opposite directions.

The Treasury Department is also planning to issue a new slate of two-year notes Monday, which some analysts say will be closely watched.

“Today’s two-year auction will set the tone for the first two days this week, depending on the size of the tail,” said Jim Vogel of FTN Financial, in an analyst note. “End-of-December Treasury sales are dicey to begin with and each bidder will be watching over their shoulder for bids wanted on any price strength.”

Vogel said participation in end-of-year bond auctions typically falls about seven or eight points, but the wintry conditions in New York might keep even more traders at bay.

Also weighing on bonds Monday was Sunday’s news that the People’s Bank of China raised its benchmark interest rates by a quarter of a point, increasing its one-year lending rate to 5.81 percent and the one-year deposit rate to 2.75 percent.

That marked the second hike in just over two months. China raised rates in October for the first time in three years. That move also send stocks lower.

Trading desks continued to be lightly staffed. Both stock and bond trading has been relatively muted recently. Treasuries have essentially been in a downward trend all December.

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