By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 24 (Reuters) - U.S. Treasury debt prices slumped on Wednesday, after Treasury Secretary Steven Mnuchin backed a weaker dollar to help boost America's global trade, breaking from the traditional strong currency policy of past administrations.
U.S. 30-year bond yields, which move inversely to prices, rose to their highest in more than three months, while those on 10-year and 2-year notes touched session highs.
On the eve of U.S. President Donald Trump's speech at the World Economic Forum in Davos, Switzerland, Mnuchin said a weakening of the dollar benefits the United States. The dollar, already under pressure the last few months, tumbled on his comments. Central banks aside from the Federal Reserve, such as the European Central Bank, have moved to normalize their monetary policies, boosting their currencies at the expense of the dollar.
Treasuries sold off on Wednesday in tandem with the dollar following Mnuchin's remarks.
"If that intentional policy from the administration on the dollar lasts, it might put off some overseas buyers that may be interested in buying Treasuries," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.
"It's nice to buy Treasuries when you think the dollar is near the bottom," he added.
To be sure, analysts said Mnuchin was not the only reason Treasuries sold off.
Vogel said investors reversed the rally seen in Treasuries on Tuesday after the Bank of Japan kept interest rate targets unchanged and its top official, Governor Haruhiko Kuroda, quashed speculation of a move away from easy monetary policy.
"The impact from the BoJ sort of eroded. We never thought it would last 12 hours, but it did," said Vogel.
In late morning trading, U.S. 10-year Treasury yields rose to 2.655 percent, from 2.622 percent late on Tuesday.
U.S. 30-year bond yields, meanwhile, hit a 3-1/2-month peak of 2.956 percent and were last at 2.942 percent, upfrom 2.902 percent on Tuesday.
U.S. 2-year note yields were also higher, trading at 2.080 percent , from 2.059 on Tuesday.
Some dealers said the market sold Treasuries ahead of the $34 billion 5-year note auction later on Wednesday. Traders tend to sell the note to bump up the yield so can they buy it at a lower price at the auction in a practice known as concession.
Investors were also awaiting the European Central Bank's policy decision on Thursday and Trump's speech on Friday in Davos.
Reuters reported last week that the ECB was unlikely to ditch their bond-buying pledge at this week's meeting, and would more likely alter guidance at the March meeting which includes updated economic forecasts.
January 24 Wednesday 11:03AM New York / 1603 GMT
PriceUS T BONDS MAR8 148-8/32 -0-31/3210YR TNotes MAR8 122-40/256 -0-68/25
6
PriceCurrent Net
Yield % Change
(bps)Three-month bills 1.4151.4398-0.007Six-month bills 1.61.6355-0.003Two-year note 99-214/256 2.08420.025Three-year note 99-108/256 2.20190.025Five-year note 98-134/256 2.44450.026Seven-year note 97-228/256 2.58420.03510-year note 96-120/256 2.66140.03930-year bond 96-12/2562.95020.048
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps) U.S. 2-year dollar swap18.00-1.75spread U.S. 3-year dollar swap18.50 0.25spread U.S. 5-year dollar swap 6.75 0.25spread U.S. 10-year dollar swap2.25-0.50spread U.S. 30-year dollar swap-15.00-1.25spread (Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith Mazzilli)
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