U.S. Government bonds slump ahead of 7-year auction, Yellen’s testimony tops priority

The US Treasuries witnessed downward pressure across the curve Wednesday ahead of the seven-year note auction and Federal Reserve policymakers’ speech, followed by Chair Janet Yellen’s testimony.

The yield on the benchmark 10-year Treasury note rose 2-1/2 basis points to 1.581 percent, the yield on 5-year bond jumped 2 basis points to 1.143 percent and the yield on short-term 2-year note climbed 1-1/2 basis points to 0.758 percent by 12:00 GMT.

Head of the Federal Reserve bank in San Francisco John Williams said that the US economy can handle an interest rate increase and the arguments from Rosengren, who dissented on Fed decision, are 'compelling'. He also added that it is getting harder and harder to justify incredibly low-interest rates and also seemed worried about getting too 'greedy' on reducing the unemployment rate.

Further, he sees a significant difference of view inside the Fed and mentioned that an easy way to convince markets is by raising rates. Said Janet Yellen fully understands both sides and is the right person to find a way forward. Lastly, he expects Yellen to stay until term ends in 2018, no matter who becomes the President.

On Tuesday, the 34 billion dollars 5-year note auction came at 1.129 percent (15.58 percent award at high) with a bid-to-cover ratio of 2.39, non-comps of 37.9 million dollars, an indirect bid of 61.4 percent and direct bid of 4.4 percent. In context, the 12-auction average for bid-to-cover is 2.43, for indirect is 59.6 percent and for directs is 7.4 percent.

The preliminary Markit US Service PMI measure increased to 51.9 for September, versus the 50.9 result seen for August, above expectations for a 51.2 result. Meanwhile, the final Markit US Composite PMI measure increased to 52.0 in September, versus the 51.5 reading seen in August.

Meanwhile, the S&P 500 Futures traded 0.50 points higher at 2,153.50 by 12:20 GMT.