Longer-dated Treasuries dip

US longer-dated Treasury debt prices eased slightly on Monday as investors pushed for concessions ahead of the sale of $66 billion in new Treasury supply this week. Losses in the long end were limited, however, as worries over the economic impact of soaring oil prices maintained the safe-haven allure of US debt. Stocks fell as techs, heretofore a leading sector, sold off.
US government debt yields are currently in the middle of their five-week range as the market grapples with competing forces of a safe-haven bid and improving US economic data, which has sent yields higher as investors anticipate a rise in rates. Despite Monday's limited price weakness, headlines from the Middle East and North Africa are likely to maintain a bid for Treasuries over the near term as Treasuries are technically set for price gains, analysts said. "Technical conditions remain supportive for bonds," said William O'Donnell, head of US Treasury strategy at RBS Securities in Stamford, Connecticut.
"Positioning appears defensive/short, bond market sentiment is still bearish, we're still below former bear rate trendlines and weekly momentum studies have turned bullishly for two through 30-years. We remain comfortable with the view that the next 40 basis points in 10-year yields is lower," O'Donnell said. Benchmark 10-year notes traded 4/32 lower in price on Monday, with yields rising to 3.51 percent from 3.50 percent late Friday. The notes have traded in a range between 3.35 percent and 3.77 percent since late January.
"With US tens unable to break above 3.57 percent and equities at risk of a downside correction, we maintain our bullish bias, targeting 3.25 percent and 3.22 percent," said MacNeil Curry, chief rates and currencies strategist at Bank of America Merrill Lynch in New York.
The Treasury will sell $32 billion in new three-year notes on Tuesday and $21 billion and $13 billion in reopenings of 10-year notes and 30-year bonds on Wednesday and Thursday. Trading in inflation-linked bonds reflected increasing concerns about the longer-term effects of rising food and energy costs, with oil prices hitting 2-1/2 year highs on Monday.
"In the front end there is a lot of volatility, based on oil prices," said Michael Pond, co-head of interest rate strategy at Barclays Capital in New York. Break-evens on 10-year Treasury Inflation-Protected Securities, or TIPS, which reflect market inflation expectations, rose as high as 253 basis points on Monday, up from around 227 basis points in mid-February. Three-year notes traded unchanged in price to yield 1.20 percent, while five-year notes were also unchanged to yield 2.19 percent.