By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices extended losses on Wednesday, pushing yields to their highest levels since October, breaking a range after the Federal Reserve sounded slightly more comfortable with the economic outlook and most U.S. banks passed their stress tests.
Higher yields should make the government’s sale of 30-year bonds later in the session more attractive, analysts said.
Yields on 10-year notes 10_YEAR +3.29% , which move inversely to prices, rose 6 basis points to 2.19%. A basis point is one-hundredth of a percentage point.
The benchmark securities haven’t closed above that level since October.
Yields on 30-year bonds 30_YEAR +2.11% increased 7 basis points to 3.34%, touching their highest level in four months.
Yields on 5-year notes 5_YEAR +5.56% jumped 5 basis points to 1.05%. They haven’t closed above 1% since October.
October is when the Fed began a program known as Operation Twist, under which it’s still buying long-term debt and selling shorter-dated holdings to hold down interest rates without the central bank further expanding its balance sheet.
After meeting Tuesday, the Fed’s Open Market Committee noted improvement in business and household spending and acknowledged the recent rise in gas prices, but it said the inflationary effects are expected to be temporary. See story on Fed meeting.
“Treasurys were under pressure overnight on a continuation of the FOMC and stress-test-inspired selloff on Tuesday,” said David Ader, head of government-bond strategy at CRT Capital Group.
He added that traders and investors had taken a lot of short positions, bets that Treasury prices would fall. That positioning may limit the move higher in yields.
“One, or several, days of price action shouldn’t be interpreted as the beginning of the end or end of the beginning,” he wrote in a note. “Figure we all were poised to want to sell, positions have been leaning short by most measures, and who isn’t happy about the selloff?”
In the statement after the Fed’s policy meeting, central-bank officials also left no hint of extending its bond-purchase programs or of needing a new one. Such efforts are often referred to as quantitative easing.
“The Fed’s statement acknowledged the improving labor picture and the temporary run-up in inflation, both of which dampened QE expectations,” said George Goncalves, head of U.S. rates strategy at Nomura Securities. “This is one of the key drivers causing the rates backup right after FOMC.”
J.P. Morgan Chase JPM -0.42% , Bank of New York Mellon Corp. BK -0.32% and other banks said they would lift their dividends and buy back more shares after they passed the Fed’s stress tests. The tests were designed to see if banks have maintained sufficient capital ratios to withstand a hypothetical deep-recession scenario. Read about bank stress tests.
Goncalves added: “J.P. Morgan’s share-buyback plan and dividend increase further fueled the rates selloff, this time accompanied by a spike in equities as well” late Tuesday, though U.S. stock markets opened in barely positive territory.
Treasury prices remained under pressure after a report showed U.S. import prices rose in February by less than some analysts expected. It was the first rise in three months, though attributable to rising oil prices. Read about import prices.
At 1 p.m. Eastern time, the Treasury Department will auction $13 billion in 30-year bonds. It’s the last of three major debt sales this week. See recent Treasury auction results.
The U.S. sold 10-year and 3-year notes 3_YEAR +5.00% earlier this week.
