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 1.28, +0.03, +2.07%) during the session.
Yields on 10-year notes (UST10Y 2.67, +0.03, +1.02%) , which move inversely to prices, rose 5 basis points to 2.69%. 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 0.40, +0.01, +1.77%) — 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 4.01, +0.01, +0.13%) 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. Inflation erodes that value of fixed payments and is 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. Read more about Fed easing.
“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 become 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.
