NEW YORK: US Treasury yields rose on Monday as oil prices held above last week's low levels, helping lift risk sentiment ahead of the government's sale of new two-year notes, the first offer of $104 billion in new supply this week.
Treasury yields increased from two-month lows last week as stocks gained, boosted since the Federal Reserve said it would take a "patient" approach toward raising interest rates and as oil prices come off lows.
"With the bounce in the Dow and in equity markets globally, you're starting to see some of that 'risk off' trade come off and we're starting to see some 'risk on' ... I don't think there's anything new for bonds to make a move here to lower yields," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital Markets in New York.
Volumes are likely to drop this week due to the Christmas holiday, which could reduce demand for new government debt sales. The potential for renewed tensions between Russia and Ukraine, however, could help add a bid to US debt as the oil price drop roils the Russian currency, said di Galoma.
Brent oil fell below $61 a barrel on Monday, reversing gains after Saudi Arabia indicated it could increase output. Brent dropped 75 cents to $60.62, but stayed above last week's low of $58.50. It is down more than 48 percent from the year's peak in June above $115 per barrel.
Benchmark 10-year notes were last down 5/32 in price to yield 2.183 percent, up from 2.176 percent late on Friday.
The Treasury will sell $27 billion in two-year notes on Monday, the first sale of $104 billion in new notes this week. The government will also sell $35 billion in five-year notes on Tuesday and $29 billion in seven-year notes on Wednesday, in addition to $13 billion in reopened two-year floating rate notes on Tuesday.
Two-year notes yielded close to their highest in three-and-a-half years at 0.65 percent. Traders expected the new notes will price around 4 basis points higher than they are trading in the secondary market, at 0.69 percent, according to the "when issued" market.
Short and intermediate-dated debt are the most sensitive to interest rate increases.
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