By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasury prices rose Tuesday, pushing yields down from their highest levels in at least five months, as the market settles into a new, higher trading range after last week’s big selloff.
Analysts will tune into comments from Federal Reserve speakers since the big shift which followed last week’s policy statement that was interpreted as showing officials were less inclined to extend their ultra-accommodative monetary policies.
Yields on 10-year notes 10_YEAR -1.22% , which move inversely to prices, fell 4 basis points to 2.34% — their first decline in six sessions. A basis point is one one-hundredth of a percentage point.
On Monday, yields closed at the highest level since Oct. 27.
Yields on 5-year notes 5_YEAR -1.92% declined 4 basis points to 1.16%, also after touching their highest in more than five months.
Thirty-year bond yields 30_YEAR -1.06% slipped 5 basis points to 3.44%, after closing at their highest level since Sept. 1.
The latest selloff was more pronounced for longer-term debt, where expectations for further Fed bond buying — a third round of quantitative easing — were more concentrated.
“The recent rise in real yields is symptomatic of the market scaling back its expectations of further Fed intervention,” said Ajay Rajadhyaksha, head of U.S. fixed income and securitized products strategy at Barclays Capital. Real yields refers to the yield amount excluding inflation. However, “the market is being too aggressive in pricing in the Fed hiking cycle and we recommend long positions in the front end of the U.S. rates curve.”
Fed Chairman Ben Bernanke will deliver the first of four lectures, starting at 12:45 p.m. Eastern time, at the George Washington School of Business.
Treasury prices stayed higher after a report showed U.S. housing starts unexpectedly fell slightly to a 698,000 pace last month.
While U.S. economic data have improved in recent months, leading Fed officials have made clear they want to be sure the improvement is sustainable before removing any accommodation, noted Steven Ricchiuto, chief economist at Mizuho Securities.
“We find it hard to fight the Fed,” he said. “Our new market call is for the 10-year note to establish a new 2% to 2.50% trading range and to hold this range through at least the summer.”
Analysts at CRT Capital Group noted that trading volumes have increased along with the sharp selloff, and are currently at their highest since the spike in August, when the market was pricing in the Fed’s current bond-purchase program known as Operation Twist.
“The selloff has broad participation, which adds to its relevance and presumably conviction,” CRT’s David Ader and Ian Lyngen wrote in a note.
