Bonds Drop as Supply, Rate Hikes and Data Drag – 10-Year 1.788%

U.S. Treasuries were sunk Wednesday as European sovereigns led bond markets lower early. Heavy supply added pressure in front of a likely December rate increase, while the U.S. elections as well as batch of mediocre auctions and improved domestic data weighed. The long end led the way lower with the 10- and 30-years ticking to the highest yields/lowest prices since Oct. 17 while the two- and fives dropped to Oct. 12 levels.

The 30-year closed near 2.535% from a 2.502% close Tuesday. The 10-year settled near 1.788% from a 1.758% close. The five-year went out at near 1.305% from 1.276%. The two-year settled near 0.872% from near 0.86%.

The curve trade was sloped steeper with the yield spread between the two- and 10-years steepened to 91 plus from a close just under 90 while the five- and 30-year yield gap settled near 1.23 from 1.22 Tuesday.

Analysts have boosted expectations for Friday’s advance release of the Q3 gross domestic product (GDP) headline. Action Economics noted that trade and inventory reports spurred them to lift their Q3 GDP growth estimate sharply to 3.3% from 2.5%, although they trimmed their Q4 GDP estimate to 2.0% from 2.5%.

Expectations for Thursday’s final coupon offering, the $28 billion seven-year note auction, have been kept in check as the week’s two- and five-year sales were unimpressive with the elections and coming Fed meetings keeping bidders sidelined. Foreign participation rates were below average even as the rate differentials continue to favor U.S. debt.

The day’s data saw the trade deficit narrowed more than expected while new home sales improved, albeit, at a lesser rate than consensus. The

Thursday’s calendar offers the initial weekly jobless claims, and the September durable goods orders reports are due at 8:30 a.m. ET with September pending home sales at 10 a.m. and the October Kansas City Fed manufacturing data due at 11 a.m.

Treasury will offer details on Monday’s three- and six-month bill auctions at 11 a.m. and sell the seven-year notes at 1 p.m.