Profit-taking lifts yields off 60-year low

NEW YORK: US Treasury debt prices fell on Wednesday as traders booked profits from a recent rally and as stock futures pointed to a higher open on Wall Street, undermining the safe-haven value of US government debt.

Benchmark yields dipped to 1.908 percent on Tuesday, marking the lowest in at least 60 years, as worries over the eventual outcome of a debt crisis in Europe and expectations the Federal Reserve will intervene to push down long-term interest rates drove buying.

The rally seemed to lose a bit of its steam on Wednesday however, with benchmark 10-year Treasury notes trading 12/32 lower in price to yield 2.02 percent, up from 1.98 percent late Tuesday, while the 30-year bond was 28/32 lower to yield 3.32 percent from 3.27 percent.

"We are seeing some profit-taking after the 10-year yield made a new record low yesterday, and stocks are recovering a little bit from yesterday's opening slide and are better this morning," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.

US stocks were set to open higher on Wednesday, with the mood of equities investors somewhat brighter on expectations President Barack Obama is planning some $300 billion in tax cuts and government spending as part of a job-creating package to be unveiled on Thursday.

Investors were also willing to take on more risk on Wednesday in hopes a move by Germany's top court to smooth the way for the country to participate in bailout packages might help to ease the European debt crisis.

While longer-dated Treasuries dipped on Wednesday, losses were limited by expectations the Fed will go ahead with a program to extend the duration of its Treasuries portfolio, probably by selling shorter-dated maturities and buying longer-dated bonds.

The program, dubbed Operation Twist, is expected by some analysts to be announced as soon as the Fed's next policy meeting Sept. 20-21.

The data calendar was relatively thin on Wednesday, although market players will parse through the Fed's Beige Book, an anecdotal narrative of business and economic conditions across the nation, at 2 p.m. (1800 GMT).

Copyright Reuters, 2011