"The third tranche of US Treasury auctions did not quite match the upbeat results from the previous two, but was broadly in line with market expectations. The bid/cover ratio for the $26 bln worth of 7-year notes on offer was 2.26 times (YTD average 2.3 times) while indirect participants soaked up 33% of the issuance. US bond yields were very much in the spotlight again overnight, recouping some of the losses from the previous session with the 10-year yield dipping 11bp to 3.61%.
In the wake of the successful auction this week, Fed’s Fisher, a non-voting member of the FOMC this year, squashed the recent market chatter that there had been continued demand from foreign central banks for longer-term maturities and this was borne out by the auction results. He also maintained his more cautious approach to the economic outlook, reiterating his view that the unemployment rate could reach 10%. Following his recent visit to China, he also commented that there was little evidence that China wants to significantly shift its dollar portfolio, adding that China had no desire to harm the US’ financial markets as the interests of both parties were inter-connected. As an aside, note that this morning South Korea’s National Pension Fund said would reduce its exposure to US bonds and diversify onto other assets. However, the Pension Fund’s current holdings of US bonds account for 83% of its foreign bond holdings which only total $8.5 bln. Fisher also believed that the US’ coveted AAA rating, which has grabbed a few headlines of late, was not at risk of a downgrade and attributed the recent steepening in the yield curve to possibly supply concerns but also on increased confidence towards the economy." source-saxo bank
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