NEW YORK - Relief after European bank stress tests and a jump in U.S. new single-family home sales in June drew investors into riskier assets and depressed prices of safe-haven U.S. government debt on Monday.
Yields, which move inversely to prices, pushed above 4 percent on the 30-year Treasury bond US30YT=RR and above 3 percent on the benchmark 10-year Treasury note, the highest levels in about a week and a half.
The overarching factor pushing yields higher here is relief that the stress tests have come and gone without major incident, said Robert Tipp, chief investment strategist for Prudential Fixed Income, whose team helps oversee approximately $240 billion in fixed income assets.
While people have qualms about various aspects of the tests, by and large nothing came out of them to keep investors from taking a bit more risk, Tipp said. So unless investors see something that really confirms the economy is rapidly decelerating, they will continue to move to riskier assets and away from U.S. government bonds.
A jump in sales of new U.S. single-family homes that drove the number of houses on the market to their lowest level in nearly 42 years offered some hope that the housing market might begin to do better later in the year, contributing something to economic growth, and thus weighed on Treasuries prices.
Daiwa Securities American chief economist Michael Moran noted that the level of new homes sales remained low despite the month-to-month improvement, but traders said the improvement was enough to encourage investors to choose riskier assets like stocks over safe-haven U.S. Treasuries.
Benchmark 10-year notes US10YT=RR fell 6/32 in price, their yield rising to 3.03 percent from 3 percent late Friday. Two-year notes US2YT=RR slipped 1/32, their yield rising to 0.62 percent from 0.59 percent.
The lower Treasury prices and higher yields could come in handy as the Treasury sells $104 billion in new two-, five- and seven-year notes this week.
Some analysts said the higher yields, combined with smaller auction sizes and investors' sustained interest in capital preservation, should assure a good bid for the auctions.
Others were less confident.
I am skeptical, said Ward McCarthy, chief financial economist and managing director at Jefferies & Co in New York. The stress tests are behind us and rates are at extremely low levels. Double dip and deflation hysteria is ebbing.
Some analysts said the performance of the stock market would influence demand at this week's Treasury auctions.
The stock market is in recovery mode here and its near-term direction holds the key to this week's auctions, said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York.
The world may wake up this week and wonder why they were piling into riskless 10-year Treasury paper at sub-3 percent yields when growth surprises on the upside is occurring in countless numbers of countries, he said.
With the long-awaited European bank stress tests out of the way, dealers will approach these auctions with caution, Rupkey said.
In when-issued trading, the two-, five- and seven-year notes yielded 0.65 percent, 1.81 percent and 2.478 percent, respectively, on Monday.
Among the more influential reports likely to impact bond prices this week are ones on consumer confidence, orders for durable goods, new jobless claims, a regional manufacturing index, and the advance estimate of second-quarter gross domestic product (GDP).
(Additional reporting by Ryan Vlastelica; Editing by Andrew Hay)