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.
Treasurys stayed lower after data showed further weakness in the services, housing and factory segments of the economy.
In early action, 10-year note yields rose 10 basis points, or 0.10%, to 2.59%, the loftiest since Dec. 11.
Two-year note yields also rose, up 6 basis points to 0.85%.
Bond yields move inversely to prices.
The Institute for Supply Management's non-manufacturing index made an unexpected modest improvement, though the reading indicated the industry is still contracting.
The index rose to 40.6 in December, off from November's 37.3.
Analysts polled by MarketWatch are looking for the ISM services index to fall to 37.
"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.
Separate reports showed that in November, U.S. factory orders dropped 5.3% and pending home sales slid 4%. See factory story.
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. EST.
The notes to be auctioned were trading with a yield about 22 basis points more than regular 10-year Treasurys, said Alex Li, interest-rate strategist at Credit Suisse, one of the 17 primary dealers required to bid at auctions. The gap represents the rate of inflation investors anticipate over the life of the debt.
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?
Reports on plans by Congress and President-elect Barack Obama to pass a large fiscal stimulus package have fixated bond investors on the amount of debt the government will need to raise to finance its spending. See Obama story.
"The likelihood that Obama's stimulus package will pass, which portends more long-end supply to pay the Treasury's tab, should also keep pressure on the long end" of the yield curve, said Roseanne Briggen, Treasury analyst for Informa Global Markets.
Also on the schedule for Tuesday, the Federal Reserve will release the minutes of its December monetary-policy meeting at 2 p.m. EST.
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 other actions 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.
