Spanish worries limit losses in safe-haven bonds
By Deborah Levine, MarketWatch
SAN FRANCISCO (MarketWatch) — Treasury prices edged down on Wednesday, pushing yields higher, as the Federal Reserve wraps up its Open Market Committee meeting.
Just before the meeting ends, the U.S. will auction 5-year notes.
“Uncertainty around the FOMC could keep investors away from 5-year notes,” said George Goncalves, a bond strategist at Nomura Securities.
Yields on benchmark 10-year notes 10_YEAR +1.65% , which move inversely to prices, rose 2 basis points to 1.79%. A basis point is one one-hundredth of a percentage point.
Yields on 30-year bonds 30_YEAR +1.21% inched up 3 basis points to 2.9%, after touching their lowest level since in about a week
Five-year-note yields 5_YEAR +1.72% added 2 basis points to 0.77%.
The Treasury Department’s sale of $35 billion in 5-year notes ends at 1 p.m. Eastern time. Bond auctions are looked at as a snapshot of investor interest in U.S debt.
The Fed is expected to release a statement at 2:15 pm Eastern time. Investors expect no change to its interest-rate outlook or bond-purchase programs.
“We believe the Fed will employ no additional stimulus [but] may upgrade the economic assessment slightly, given the recent data on housing and employment,” said Tom di Galoma, managing director at Navigate Advisors.
Treasury bonds are giving back a bit of their gains from Tuesday when a series of weak corporate earnings reports and outlooks weighed on investor optimism.
Also, the looming end of tax and spending measures facing a rancorous Congress and president after the election makes investors uneasy. They’re concerned about the economic ramifications of a potential big jump in taxes and fall-off in government spending. Read: Bond yields may be headed toward recent lows.
And still up in the air, keeping bond yields from rising much, is the prospect that Spain will ask for a bailout from its neighbors, which would trigger the European Central Bank’s latest bond-buying facility.
While you would think that needing a bailout looks bad to investors, it’s been anticipated because the ECB is seen as coming in as a buyer of last resort. The central bank has deep pockets, but it’s still unclear how willing it will be to keep effectively propping up the euro EURUSD -0.1309% . Read: Dollar up as data underline Europe fears.
On Wednesday, analysts at RBS Securities noted a report that the international lenders of Spain’s bank bailout will “demand much tougher action by the country’s authorities to clean up toxic debts, risking a clash that could deter Madrid from requesting a full sovereign bailout.” Read telegraph co.uk: Europe ratchets up grip on Madrid.
Deborah Levine is a MarketWatch reporter, based in San Francisco.
