By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices turned down Monday after U.S. stock markets opened, pushing benchmark 10-year yields up for the fifth straight day.
Analysts also pointed to comments from William Dudley, president of the New York Federal Reserve Bank.
Bonds had been up in morning action as last week’s big selloff pushed yields above the range they had been in for months. Still, yields are likely to remain in a new, higher range instead of trending up, analysts said.
Yields on 10-year notes 10_YEAR +0.57% , which move inversely to prices, turned up 2 basis points to 2.32%, from as low as 2.26% touched during European trading hours. A basis point is one-hundredth of a percentage point.
Thirty-year-bond yields 30_YEAR +0.15% rose 2 basis points to 3.43%.
Yields on 5-year notes 5_YEAR +3.40% turned 4 basis points higher to 1.16%. They haven’t closed above that level since October.
In a speech, Dudley said “the economy still faces significant headwinds” and inflation is expected to moderate.
He later added ”bond yields are higher as the ‘economy is a bit better,’” said Eric Green, chief market economist at TD Securities.
“His overall comments are very dovish, and like ourselves, he appears to view the modest rise in rates as a sign of growing health and confidence.”
U.S. stocks opened modestly lower, but the S%P 500 Index SPX +0.14% managed to turn up 0.25 in early action.
Last week, yields on all three benchmark securities rose to their highest level since October, rising at the fastest weekly pace in more than seven months. Read about Treasury selloff.
“The selloff, which brought 10-year yields as high as 2.36% intraday, has hit levels attractive enough to bring in dip-buyers,” said bond strategists at CRT Capital Group.
Also supporting bonds, the Federal Reserve is scheduled to buy Treasury debt every day this week. See Fed’s buyback schedule.
Operation Twist
The purchases are part of the central bank’s program known as Operation Twist, in which it buys long-term debt and sells shorter-dated holdings. The idea is to hold down interest rates without the central bank further expanding its balance sheet.
While the move up in yields last week pretty much erased the move since Twist began, analysts have also said the objective was to push investors out of the safety of Treasurys and into stocks, corporate debt and other assets considered riskier.
The Fed’s purchases and outlook are one of three reasons RBS Securities strategists think Treasury yields are establishing a new, higher range but not beginning a sustainable move up.
“The Fed still guides policy rates near zero out to 2014, so they don’t appear overly swayed by the recent data — at least yet,” RBS strategists led by Bill O’Donnell said.
Also, technical trendlines have not been broken and investors are not positioned in a way that typically signals a bear move in bonds, O’Donnell wrote in a note.
Ten-year yields will trade between 2.40% and about 2.06%, he said.
