Treasury’s Biggest Weekly Loss

Treasury prices posted gains on Friday, but remained headed for a weekly loss as yields on 10-year notes touched the highest levels since June amid heightened concerns about the government’s ability to finance its deficits and as investors turn to seeking out higher yields in other asset classes.

Still, U.S. debt yields, which move inversely to prices, were deemed attractive by some.

Yields on 10-year notes (UST10Y 3.86, -0.02, -0.46%)  fell 2 basis points, or 0.02%, to 3.86%. Last June, they peaked at 3.94%, which was the highest since October 2008, when the credit crisis really took off and sent yields to all-time lows.

Yields on 2-year notes (UST2YR 1.06, -0.02, -1.77%)  declined 2 basis points to 1.06%, after closing at the highest rate this year.

The week’s losses came as the successive Treasury auctions received poor demand from investors, coming at higher-than anticipated yields and with smaller proportions of the auctions being bought by a group of investors that includes foreign central banks. See previous column on auctions.

Providing some support for bonds, analysts pointed to a lack of note or bond auctions next week and the potential for month-end buying.

Benchmark bond indexes, at the end of every month, add to the index any debt that was sold during the period, which usually extended the duration of the index. Duration is a measure of price sensitivity to a change in interest rates, and is partly determined by maturity. Fund managers who try to match their holdings to benchmark indexes therefore buy recently-issued debt at month end.

That followed a government report which said the U.S. economy grew at a revised 5.6% pace in the fourth quarter, slower than reported earlier.

Benchmark 10-year securities are still on pace for the biggest weekly jump in yields since December.

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