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US Treasury yields hold higher after 5-year note sale

Katy Barnato
Kevin Lamarque | Reuters. A Federal Reserve rate hike next month would provide a boost for the world economy and allow for a further hike this year, an investment adviser says.

U.S. sovereign bond yields gained on Tuesday after a $34 billion auction of five-year notes at a high yield of 1.180 percent.

The bid-to-cover ratio, an indicator of demand, was 2.27, well below a recent average of 2.44 and its lowest level since July 2009.

Indirect bidders, which include major central banks, were awarded 53.6 percent, below a recent average of 59 percent. Direct bidders, which includes domestic money managers, bought 4.7 percent, also below a recent average of 8 percent.

After the sale, the yield on five-year notes (U.S.: US5Y) held higher on the previous session's close, then reversed last yielding 1.1331 percent. Yields move inversely to bond prices. Benchmark 10-year notes (U.S.: US10Y) last yielded 1.5595 percent.

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This followed a $26 billion auction on Monday of 2-year notes (U.S.: US2Y), which met with low demand.

Other sovereign bonds gained on Tuesday, including German Bunds (Germany: DE10Y-DE), U.K. Gilts (: GB10Y-GB) and French (France: FR10Y-FR) and Irish (Exchange: IE10Y-IE) notes. However, riskier Portuguese (Exchange: PT10Y-PT), Italian (Italy: IT10Y-IT), Spanish (Spain: ES10Y-ES) and Greek notes (Exchange: GR10Y-GR) declined.

The U.S. Federal Reserve Open Committee (FOMC) will start its two-day monetary policy meeting on Tuesday. Analysts expect the central bank to hold off on an interest rate hike this month — and possibly for months to come.

"Softer oil prices took U.S. equities down yesterday evening, dragging Treasury yields lower. There's a lot of positioning ahead of central bank meetings and the market seems happy to cut back dollar (Intercontinental Exchange US: .DXY) longs ahead of the FOMC," Kit Juckes, Societe Generale strategist, said in a note on Tuesday.

U.S. light crude futures (New York Mercantile Exchange: @CL.1) for September traded slightly lower, below $43 per barrel, early on Tuesday.

Manulife Asset Management's Geoff Lewis told CNBC on Tuesday the Fed could postpone raising rates until the first half of 2017, due to uncertainty around the Brexit vote and the upcoming U.S. presidential election.

—With contribution from CNBC's Arjun Kharpal. Follow CNBC International on Twitter and Facebook.

This is breaking news. Please check back for updates.



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