U.S. data on home prices, consumer confidence due later
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices fell for a third day on Tuesday, erasing much of the Federal Reserve-inspired plunge in yields, as investors shifted back into riskier assets like stocks and commodities and bond traders set up for the first of three government debt auctions this week.
“The Treasury market was under modest pressure overnight with the long bond leading the downtrade as global equities continued to bounce,” said bond strategists at CRT Capital Group.
Yields on 10-year notes 10_YEAR +3.31% , which move inversely to prices, rose 7 basis points to 1.98% — above where they were trading the day before the Fed’s meeting, when policy makers pledged to buy more long-term debt by selling its shorter maturities.
A basis point is 1/100th of a percentage point.
Yields on 30-year bonds 30_YEAR +2.64% increased 10 basis points to 3.09%, still well below the level seen before the Fed meeting.
Two-year note yields 2_YEAR +5.00% added 1 basis point to 0.25%. They touched 0.28%, their highest level since the Fed’s early August meeting when officials said they would keep interest rates low until mid-2013 — for two years. That’s also above the central bank’s target range for the fed funds rate of zero to 0.25%.
At 1 p.m Eastern time, the Treasury Department will sell $35 billion in 2-year notes, the first auction since the Fed’s meeting last week. See recent auction results.
“The key question facing potential bidders at Tuesday’s 2-year auction is whether they should buy front-end paper from the Treasury or wait for the Fed to start selling and earn higher yields at the cost of lower liquidity,” said George Goncalves, a bond strategist at Nomura Securities.
“Despite this conundrum, we expect fair demand for the 2-year debt as the Fed’s pledge to keep its policy rate ‘exceptionally low’ at least through mid-2013 keeps short-dated assets well bid,” he said.
Early Tuesday, the Treasury market saw less demand for its relative safety and liquidity amid more comfort that European leaders will take the big steps necessary to resolve their sovereign debt crisis.
News reports detailed a plan being considered by euro-zone officials to dramatically bolster the European Financial Stability Facility, or EFSF, the euro zone’s bailout fund. Weekend reports also hinted at plans to recapitalize the euro area’s banks. Read recent story on Europe’s plans.
Still to come are data on U.S. home prices and consumer confidence.
