NEW YORK: US Treasury debt prices slipped on Monday ahead of $90 billion of fixed-rate supply and a Federal Reserve meeting later this week in a session marked by low volumes as a major winter storm hit the New York area.
Treasuries had begun the day on a stronger footing after investors spooked by Greece's newly elected government ignited a modest flight-to-quality bid, briefly knocking yields on the US 30-year bond to a record low.
But as the day progressed, and traders began making early exits as transportation authorities from Philadelphia to Boston warned of commuting disruptions, prices weakened in anticipation of Treasury auctions of two-year, five-year and seven-year notes this week.
The storm forced the Treasury Department to alter the auction schedule, moving the $26 billion two-year sale to Wednesday from Tuesday and the $35 billion five-year sale to Thursday from Wednesday.
Traders and portfolio managers said this week's Federal Open Market Committee meeting, which begins on Tuesday and concludes with a monetary policy statement on Wednesday, was also keeping a lid on major moves.
The Fed is not expected to say much to alter the view that the US economy remains on firmer footing than much of the rest of the world.
The main uncertainty around the meeting centers on the degree to which the Fed might nod to weak conditions in Europe, which forced the European Central Bank to announce a massive bond-buying program last week.
That has also helped to drive the US dollar to an 11-year high, a factor that could dent US growth and send inflation further below the Fed's target.
"It's a tug of war in the bond market. You have a better US economy with a Fed that wants to tighten and European yields going down with the ECB action," said Eric Stein, portfolio manager at Eaton Vance in Boston. The prospect of new supply of shorter-dated paper later this week exerted pressure on two-year notes, which dropped about 1/32 in price, pushing their yield up 3 basis points to about 0.52 percent. Yields on benchmark 10-year notes meanwhile, held steady near 1.82 percent, around their closing level on Friday.
The 30-year bond, after briefly touching a record-low yield below 2.34 percent early in the day, weakened by 7/32 in price with the yield rising 1 basis point from Friday's close to 2.40 percent.
With shorter-dated yields rising by a greater margin, the US yield curve continued its flattening trend, and the spread between two- and 10-year notes tightened to just over 1.30 percentage points, the narrowest since July 2012.
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