GM Generali

By Deborah Levine

Treasury prices declined Thursday, sending yields higher for a fourth consecutive session, as the government completed the last of the week's three record-sized note auctions.

Growing government-debt issuance is in sharp focus as President Barack Obama released his budget for fiscal 2010 and predicted a yawning $1.75 trillion federal deficit.

Ten-year note yields (UST10Y) rose 4 basis points, or 0.04%, to stand at 2.97%. The benchmark note's yields earlier topped the 3% mark for the first time since Feb. 9.

Bond prices move inversely to their yields. A basis point is 0.01 percentage point.

In the first sale of 7-year notes since 1993, the Treasury Department sold $22 billion to yield 2.748%.

Bidders offered $2.11 for every dollar available.

Indirect bidders, a class of investors that includes foreign central banks, bought 38.7% of the notes up for bid.

While there isn't a previous sale to compare this one to, it can be said that more than a quarter of the offering going to indirect bidders has the makings of a new auction, said Andrew Brenner, co-head of structured products and emerging markets at MF Global.

The return of a long-retired maturity is part of the government's plan to increase bond issuance to finance all of the programs and stimulus enacted by the Federal Reserve and Congress in the hopes of stabilizing financial markets and helping bring the recession to an end.

On Tuesday, the Treasury sold $40 billion in two-year notes, followed by $32 billion in five-year notes (UST5YR) on Wednesday. Both sales received decent overall demand from investors, but they failed to inspire a rebound for the broader market.

Shorter maturities fared better as a trio of U.S. economic reports issued Thursday came in weaker than analysts had expected and stocks turned negative late in the day.

Two-year note yields (UST2YR) declined 1 basis point to 1.08%.

First-time applications for state unemployment benefits rose 36,000 last week, reaching a seasonally adjusted 667,000, the highest since October 1982. And for the week ended Feb. 14, the number of people collecting benefits climbed to a record 5.11 million, the Labor Department reported.

"The unemployment claims data are indicating a significant pickup in the pace of job loss in February and a further rise in the unemployment rate," said economists at RDQ Economics. They expect the government employment report for February, to be released next week, to show that the economy lost 750,000 jobs.

Separately, orders for durable goods fell a more-than-predicted 5.2% in January, extending their recent string. Orders had never fallen six months in a row since the Commerce Department began collecting this data in 1992.

Also Thursday, sales of new homes fell 10.2% in January to a record low, data showed. The Commerce Department said sales fell to seasonally adjusted annual rate of 309,000, worse than economists anticipated.

Perhaps counterintuitively, the weak data aren't helping bonds, said strategists at RBS Greenwich Capital.

"It's possible that the market has reached the point where there is more supply than demand all other things being equal," they wrote in an email.

Agency, corporate debt actions

Treasurys also competed for attention against other issuers selling debt.

Housing finance giant Fannie Mae (FNM) sold $15 billion in 2-year notes to yield 1.801%. That's 68 basis points more than the comparable Treasury, according to the mortgage agency.

And in corporate bonds, General Motors Corp.'s bonds held up after the embattled automaker (GM) said earlier Thursday that it lost $9.6 billion in the forth quarter and burned through $6.2 billion in cash.

GM's 7.125% bonds maturing in 2013 were trading at around 15 cents on the dollar, unchanged from Wednesday, according to KDP Advisors. The bonds fell to as low as 13 cents earlier in the month.

Companies have seen plenty of demand for new sales of debt this month. Investors have been attracted to relatively high yields that offer what many fund managers consider returns similar to equities in an average year -- and far better than equities have performed lately.

February is, so far, the third-busiest month on record for the issuance of corporate bonds, according to Dealogic.