By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices turned up slightly on Tuesday, extending the prior two sessions’ rally, with traders adjusting positions as the Federal Reserve’s Open Market Committee starts its two-day meeting.
Volatility in stock and currency markets, with U.S. markets opening lower and the euro turning down against the dollar, also lent support to U.S. bonds.
Yields on 10-year notes 10_YEAR -0.10% , which move inversely to prices, were little changed at to 1.96% after touching 1.99% in morning trading.
Thirty-year-bond yields 30_YEAR -0.09% decreased 1 basis point to 3.22%. A basis point is 1/100th percentage point.
Expectation of that move has reduced the gap between the longest-dated debt sold by the U.S. -- 30-year bonds -- and 10-year notes. The spread is now 1.26 percentage points, down from a recent high of 1.47 points just after the Fed’s last meeting in early August.
The spread had widened throughout the year as 10-year debt rallied faster than the long bond. But 30-year yields have recovered some of that as investors bet that the Fed will buy debt of that maturity.
“An aggressive twist could extend the rally in bonds below 3%, an area that was broken not long ago by the 10-year note, said Richard Gilhooly, U.S. director of interest-rate strategy at TD Securities. “This would keep the newly-converted bond bulls in positions, but a disappointing twist announcement could see some positions unwound into year-end after out-sized gains over the past month.”
Bonds edged down slightly after a report showed U.S. housing starts fell more than forecast but permits unexpectedly rose in August. See story on housing starts.
