By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices fell Wednesday, pushing yields on 10-year notes to the highest since the Federal Reserve’s last policy meeting, as bond traders further adjusted expectations of what the central bank may actually announce in the way of buying U.S. debt.
Also pressuring prices, the Treasury Department will be selling 5-year notes (UST5YR 1.29, +0.03, +2.63%) during the session.
Yields on 10-year notes (UST10Y 2.69, +0.05, +1.85%) , which move inversely to prices, rose 4 basis points to 2.68%. A basis point is 0.01%.
They touched 2.71% earlier, the highest yield since Sept. 20, the day before the last Federal Reserve interest-rate meeting — effectively erasing the strong rally since then.
Yields on 2-year notes (UST2YR 0.41, +0.01, +2.78%) — more sensitive to expectations that the Fed will keep its target interest rate on hold for a very long time yet — slipped 1 basis point to 0.40%.
Yields on 30-year bonds (UST30Y 4.05, +0.05, +1.17%) hit 4.05%, up 5 basis points on the day.
The longest-dated U.S. debt has lagged the entire easing-fueled rally as investors remain worried that such a plan could fuel inflation over the longer term. As inflation erodes that value of fixed payments, it’s a bigger determinant of long-term bond yields.
The Fed is likely to say it will buy a few hundred billion dollars over several months, according to a Wall Street Journal report. That would be a far cry from the $2 trillion total of quantitative easing, or QE, that analysts at Goldman Sachs and at HSBC forecast in the last week.
“What’s clear is that there is still active debate at the Fed over QE and that debate has spilled into the public domain like never before,” said Bill O’Donnell, head of Treasury strategy at RBS Securities. News reports out Wednesday suggest the Fed thought “expectations may have gotten out of hand.”
Still, whether the Fed announces long-term buying plans after its meeting on Nov. 2-3 or just the outlook for a few months, ultimately the U.S. central bank’s goal is to lower interest rates to spur more lending and borrowing. Fed officials don’t want to see bond yields rise now or after its announcement, noted analysts at CRT Capital Group.
“Which is why, by the way, we think they’ll make sure the result is anything but higher yields,” they wrote in a note.
So if 10-year yields get to 2.75% or 2.86%, it would constitute a buying opportunity, according to CRT.
U.S. data
Bonds stayed lower after a Commerce Department report Wednesday showed U.S. durable-goods orders rose 3.3% in September, topping expectations. Excluding transportation goods, orders for so-called big ticket items fell 0.8%. Read about durable-goods orders.
Many analysts and economists look at orders for non-defense capital goods as a proxy for business spending. That measure declined in September and has been slowing in recent months, boding poorly for the economic recovery, said Dan Greenhaus, chief economic strategist at Miller Tabak.
“Business spending by this measure has been fairly important for supporting growth over the last few months, but it appears as if such contributions will be less significant,” he said.
Still to come is a report on new-home sales for September.
Also, the Treasury Department will accept bids on $35 billion in 5-year notes until 1 p.m. Eastern time. See recent auction results.
The government received good demand for its sale of 2-year notes on Tuesday, even though yields on the new debt set a record low. Read about 2-year auction results.
