Treasuries decline

With no new economic data to guide them and light activity in the marketplace, Treasury debt prices drifted lower on Monday as traders prepared for auctions of $66 billion in notes and bonds starting on Tuesday. An early sell-off that took 30-year bonds a full point lower in price faded, leaving prices little changed across the Treasury yield curve. Analysts described the late-in-the-day return to Friday's prices as a reaction to an accelerating sell-off in US stocks.
Declines in the stock market, especially in bank stocks, were helping bring Treasury prices back into the black, said Ralph Axel, rates strategist at Bank of America Merrill Lynch in New York. "There's talk about Japanese bank stocks being near some very long-period lows," he said, adding that the move in Treasuries was "something you would expect anyway if stocks were declining, especially the whole banking sector."
Major US stock indexes were down between 0.5 percent and 1 percent late in afternoon trading. "You're seeing some day shorts cover up," said Marty Mitchell, chief market technician at Stifel Nicolaus in Baltimore. "It's been a quiet start to the week, really. The magnitude of the decline doesn't really tell a story - that's how quiet it's been."
Treasury yields remained near six-month lows, with recent evidence of a slowing economic recovery and worries over the eventual outcome of debt problems in Greece and Portugal supporting the safe-haven appeal of US government debt. Benchmark 10-year Treasury notes were trading 2/32 lower in price to yield 3 percent, up from 2.99 percent late on Friday. The yields dipped to 2.94 percent last week, marking the lowest since early December.
The Treasury is set to sell $32 billion of three-year notes on Tuesday, $21 billion of reopened 10-year notes on Wednesday and $13 billion of reopened 30-year bonds on Thursday. The Federal Reserve on Monday bought $6.397 billion of Treasuries maturing December 2013 through May 2015 as part of its program to prop up the economy, known as QE2.
"The lack of information this week will leave the market to the whims of the push-pull of buybacks and auction, headlines out of Europe - which we seem to be increasingly immune to - and the performance of the equity/risk markets following Friday's data," said John Briggs, Treasury strategist at RBS Securities in Stamford, Connecticut.
Two-year Treasury notes were trading unchanged in price to yield 0.45 percent, while 30-year bonds were 14/32 lower in price to yield 4.26 percent from 4.23 percent late on Friday. The price action on Monday widened the spread between two-year note yields and 30-year bonds yields to 383 basis points, with the gap between the two yields at its widest since mid-March.