LONDON: Ten-year US government bond yields were little changed on Tuesday before key monetary policy meetings later this week and are expected to retest recent record lows if major central banks disappoint market expectations for more policy action.
US 10-year government bond yields were virtually flat at 1.51 percent, not far from a record low of 1.38 percent hit last week, before a Federal Reserve meeting that finishes on Wednesday and a European Central Bank meeting that ends on Thursday.
There are mixed views on whether the Fed will hold fire and mainly offer markets dovish language or whether it could undertake one or more steps, including purchases of bonds in the open market. But the stakes are higher for the ECB, whose President Mario Draghi's strong comments last week fueled high expectations for bold policy action.
"Given what they have told us, 'believe me it will be enough', they have to deliver big and overshoot estimates," one trader said.
In his boldest comments since taking the ECB's helm last November, Draghi pledged last Thursday to do whatever was necessary to protect the euro zone from collapse, specifically mentioning high risk premiums on some sovereign debt. Draghi at the time also said "believe me, it will be enough".
That has fueled speculation that the bank could resume its bond-purchasing program or even take more forceful action to bring Spanish and Italian borrowing costs down to sustainable levels. Nineteen of 24 euro money market traders expect the ECB will soon re-start the Securities Market Programme (SMP), according to a Reuters poll published on Monday.
"If all they say is they are going to bring back the SMP, that's a disappointment, because it hasn't worked already. They have got to actually go for the big bazooka," the trader said, adding that he would be long Treasuries going into the monetary policy meetings. "I don't know what they can do within their mandate. It depends how much of the rule book they want to rip up."
Data on Friday is expected to show the US economy created 100,000 non-farm jobs in July. A disappointing number could put further pressure on Treasury yields, analysts said.
"Anything between 70,000 and 120,000 is more of the same - it's weak growth but it's not alarming. I think the major thing would be if it goes to something like 20,000 or 30,000. That would really get people nervous, because it gets very close to (a number) associated with recession," Philip Marey, strategist at Rabobank said.
Before then, investors would look at Midwest business activity data later in the day for fresh insight into the health of the world's largest economy.
Fiver-year US Treasury yields were flat at 0.61 percent and thirty-year yields were little changed at 2.59 percent.
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