Medium-term US Treasuries debt outperformed other US government maturities on Monday as dealers braced for new supply of short- and long-term debt. The US Treasury will sell $32 billion in three-year notes on Tuesday, $21 billion in re-opened 10-year notes Wednesday, and $13 billion in re-opened 30-year bonds on Thursday.
Treasury yields have moved higher in recent months as investors adopted a more upbeat view on the US economic outlook. "The middle of the curve, which has been hit the hardest, is finding some support," said Tom Tucci, head of government bond trading at RBC Capital Markets in New York.
A move lower in yields since mid December shows no concession has been made for the Treasury auctions set for this week, said Ian Lyngen, senior government bond strategist at CRT Capital Group. Seven-year notes rose 10/32 in price, their yields easing to 2.64 percent from 2.69 percent on Friday.
Benchmark 10-year Treasury notes rose 9/32 in price, their yield slipping to 3.19 percent from 3.33 percent late Friday. Another supportive factor for Treasuries across the curve was the renewed focus on "the beleaguered Eurozone economies, with Portugal apparently the latest to fall into the investment community's crosshairs," said Kevin Giddis, president, fixed income capital markets at Morgan Keegan.
The Fed's second phase of buying Treasuries, known as quantitative easing, continued to make an impact, favouring Treasuries in the so-called belly (middle) of the curve. On Monday, the Fed bought $7.8 billion in securities with maturities ranging from 2018 to 2020.
But some analysts said yields might now be too high for what they believe is the more probable, subdued outlook for the US economy and an accommodative Fed monetary policy. Tipp said the four-month moving average for private non-farm payrolls growth has been about 120,000, plus or minus 25,000, since April 2010. During that time the 10-year yield has made "huge swings" from as high as 4 percent to as low as 2.33 percent, he said.
Wednesday's "blockbuster" ADP private payrolls report pushed 10-year yields above 3.5 percent, but now 10-year yields have "settled into a trading range" that reflects an economic outlook that is probably too optimistic and projections for Fed rate hikes in 2012 that are premature, Tipp said. The 30-year bond climbed 10/32, its yield easing to 4.46 percent from 4.48 percent on Friday.
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