NEW YORK: Medium-term Treasuries ended barely higher on Monday, while long-dated US debt came under a bit of pressure from profit-taking and price cuts before supply.
The Treasury will sell 10-year notes on Wednesday and 30-year bonds on Thursday.
Prices of medium-term US Treasury debt conceded the day's best gains as a modest stock market advance curbed the bid for safe-haven US debt.
A round of selling also occurred after the president of Federal Reserve Bank of Atlanta, Dennis Lockhart, suggested he had not yet made up his mind about the potential need for another round of monetary stimulus, which would most likely take the form of additional bond purchases by the Fed. Still, he made clear the bar remains high, particularly with economic growth having picked up in the fourth quarter.
"The selloff coincided with Atlanta Fed President Lockhart's comments," said Thomas Simons, money market economist at Jefferies & Co. in New York. "His comments were hardly hawkish, but they were not as dovish as some other recent remarks from Fed officials."
In addition, yields on long-term Treasuries hit their lowest level - and prices their highest levels - since before the release of a surprisingly strong December US employment report on Friday, Simons noted, making it an opportune time to take some profits.
Several factors offered underlying support, however, and kept bond prices from turning negative across the board. These included renewed jitters about Greece's ability to get aid and avoid default and Iran's threat to shut the Strait of Hormuz, a key oil-shipping route, in response to US and European sanctions aimed at curbing Iran's nuclear program.
An Iranian official in Tehran and the Vienna-based International Atomic Energy Agency on Monday confirmed that Iran has switched on a uranium enrichment plant inside a mountain. In addition, Iran sentenced an American to death for spying.
"The saber rattling in Iran has everyone nervous," said Ray Humphrey, senior vice president and senior portfolio manager at Hartford Investment Management Co. in Hartford, Connecticut.
Other risks that restrain any potential rise in Treasury yields include the market's "fixation" on headlines related to developments in the euro zone debt crisis and China's focus on "fighting inflation rather than growing the economy," he said.
"Iran (engenders) an ongoing safety bid," said Cary Leahey, managing director and senior economist at Decision Economics.
On the euro zone debt front, German Chancellor Angela Merkel and French President Nicolas Sarkozy said progress was made on the region's fiscal integration, seen as necessary to instill investor confidence.
But Merkel said it would not be possible to pay out the next aid tranche to Greece without rapid progress on its second rescue package, including the voluntary restructuring of Greek debt held by private creditors.
Looking ahead, expectations for fourth-quarter stock earnings are so low that results could surprise to the upside, said Gary Thayer, chief macro strategist at Wells Fargo Advisors in St. Louis, Missouri. Positive earnings surprises could help stocks and work to the disadvantage of Treasuries.
The US Treasury Department will also sell $32 billion in three-year notes on Tuesday. With the Fed having anchored short-term rates with a pledge to keep them near zero at least through the middle of 2013, the market should have little trouble distributing the new notes, traders said.
The Treasury is selling a total of $66 billion in coupon debt this week.
Several European governments are scheduled to tap the debt market this week, including Spain and Italy. Borrowing costs for Spain and Italy have been stuck at levels seen as unsustainable, given those nations' heavy debt loads.
Benchmark US yields probed the lower end of their trading range that was set last week.
The 10-year note was unchanged on the day in late trade, yielding 1.96 percent.
The 30-year Treasury bond slipped 4/32 to 102, leaving its yield at 3.02 percent, about the mid-point of the day's range.
Trading volume was light, with hedging on corporate bond supply causing choppiness at the long end of the curve.
IFR, a unit of Thomson Reuters, estimates $20 billion in new debt could be sold by companies this week.
"You see choppiness from corporate supply and worries about corporate earnings," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.
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