U.S. to take bids on $54 billion in government debt this week
Treasury prices declined Tuesday, sending 10-year note yields to the highest levels seen in a month, ahead of the government's first note auction of the week as well as data expected to show further weakness in the services sector of the economy.
In early action, 10-year note yields rose nine basis points, or 0.09%, to 2.57%, the loftiest since Dec. 11.
Two-year note yields also rose, up six basis points to 0.85%.
Bond yields move inversely to prices.
The Institute for Supply management's non-manufacturing index is due for release at 10 a.m. Eastern, and separate reports on U.S. factory orders and pending home sales are expected at the same time.
Analysts polled by MarketWatch are looking for the ISM services index to fall to 37% in December, off from November's 37.3%. Readings below 50% indicate that the sector is generally contracting.
"While we've priced in horrendous data, there's no sign of it abating any time soon," said David Ader, U.S. government bond strategist at RBS Greenwich Capital.
Later Tuesday, the Treasury Department will sell $8 billion in 10-year inflation-indexed securities.
The sale comes as investors worry about massive U.S. debt issuance in the pipeline. Bids are due at 1 p.m. Eastern.
The government will also sell $30 billion in three-year notes on Wednesday and $16 billion in 10-year notes on Thursday.
Obama selling, Fed buying?
Constant reports containing details about economic-stimulus plans coming from Congress and president-elect Barack Obama have left bond investors fixated on the amount of debt likely to be needed to finance the package. See Obama story.
"The likelihood that Obama's stimulus package will pass, which portends more long-end supply to pay the Treasury's tab," said Roseanne Briggen, Treasury analyst for Informa Global Markets.
Such a scenario, she added, "should also keep pressure on the long end" of the yield curve.
Also on the schedule for Tuesday, the Federal Reserve will release the minutes of its December monetary-policy meeting at 2 p.m. Eastern.
Wrightson ICAP said analysts will focus on any further details on policy makers' decision to lower the central bank's target interest are to a record low of 0.25% to zero, as well as any discussion of why they chose that time to predict "exceptionally low levels of the federal funds rate for some time."
The Treasury market will also be interested in any discussion about potentially buying longer-term Treasurys in addition to its actions to date to support the U.S. housing and financial markets.
"This afternoon's minutes may give us a better sense of whether there was significant opposition to the idea or merely some uncertainty about how best to implement it," Wrightson ICAP economist Lou Crandall wrote in a research report.
