Analysts said the strong bid for seven-year paper, which followed a strong five-year note auction on Wednesday, was largely the result of an overzealous selloff that has gripped bond markets since the election of Donald Trump as US president, boosting yields for newly issued Treasuries. "The auctions were so well bid because the yield is so much higher," said Jennifer Vail, head of fixed-income research for US Bank Wealth Management in Portland, Oregon. "At the end of the day that's going to drive more dollars into any new issuance."
In addition to the impact of Trump's election victory, which has sent yields on US 10-year Treasury notes from 1.83 percent on November 8 to 2.51 percent at their open Thursday, Vail said year-end buying by investors to rebalance their portfolios has increased appetite for government debt.
The 10-year note was last up 8/32 in price to yield 2.48 percent. Yields earlier fell to 2.46 percent, their lowest level since December 14. Yields on 30-year Treasury bonds fell to a three-week trough of 3.06 percent after the auction. The long bond retraced that move later and was up 2/32 in price to yield 3.08 percent. "I sense that people realise that longer-term bonds already took it on the chin and we may have gotten ahead of ourselves," said Karyn Cavanaugh, senior market strategist at Voya Investment Management in New York.
"Things are looking better for 2017 - we have the potential for a lot of pro-growth policies - but there are some risks and the best way to mitigate risk is with long-term Treasuries." Investors will look to a full slate of US inflation, manufacturing and employment data in the coming week, culminating in the January 6 release of the monthly US non-farm payrolls report. The bond market will close at 2 pm. Friday in advance of the New Year's holiday weekend.