NEW YORK: US Treasury debt prices rose on Monday ahead of three major central bank meetings this week as traders focused on whether policymakers will take steps aimed at stimulating economic growth.
The Federal Reserve meets on Tuesday and Wednesday, and the European Central Bank and Bank of England meet on Thursday.
Action by the central banks could favor riskier assets, to the detriment of safe-haven Treasuries. But they could also favor riskier assets and Treasuries simultaneously, especially if they include more bond purchases by the Fed in the open market.
Views are mixed, however, on how much action central bankers will undertake this week to address slow economic growth.
Some believe the Fed will hold its fire and mainly offer markets dovish language and the hope of further action if conditions warrant. Others believe the Fed could undertake one or more steps, including purchases of bonds in the open market.
"On June 20 they announced they would continue the expiring QE Twist program through the end of the year - this would appear to rule out additional monetary policy action until early in 2013, perhaps to be announced at the Dec. 11-12 meeting," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
After forceful remarks from European Central Bank President Mario Draghi on protecting the euro zone last week, which boosted riskier assets and sparked a two-day sell-off in safe-haven US Treasuries, some analysts believe the ECB must take action this week or risk disappointment that could send sovereign yields for some euro zone nations unacceptably high.
"With Draghi saying the ECB will do what it takes, we presume they will be purchasing bonds," he said. "In doing so, the ECB will be catching up to the curve after previously being behind the curve," said Charles Reinhard, managing director and global investment strategist at Morgan Stanley Smith Barney in New York.
Robert Tipp, chief investment strategist for Prudential Fixed Income, which has over $330 billion in assets under management, took a different view, saying ECB action might not be immediate, but that the Fed might be assertive.
A "panic selloff" in Treasuries occurred on Friday, he said, on the view that the European Union was reaching consensus on an aggressive spread of stimulus measures.
"What the markets are realizing coming into this week is there's going to be a wait; it's going to take time for the Europeans to get their ducks in a row," Tipp said. "In that vacuum, given the supply-demand imbalance in Treasuries, anxiety is going to kick in and pull Treasury yields lower."
But the Fed could very well take further measures to stimulate the economy, any of which could impact the US bond market, he said.
Benchmark 10-year Treasury notes rose 13/32 in price on Monday to yield 1.50 percent, down from 1.55 percent late on Friday. The yield on Friday was the highest since July 10, while yields hit a record low of 1.38 percent on Wednesday.
Thirty-year bonds, which bore the brunt of last week's sell-off, traded up 31/32 in price to yield 2.58 percent from 2.64 percent late Friday.
The corporate bond market was active, and rate lock unwinds associated with those deals may also have let yields ease, said Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut.
Anglo-Dutch consumer goods giant Unilever on Monday became the latest holder of low-coupon records for three-year and five-year notes, knocking IBM Inc and Bristol-Myers Corp off the top rung. The company sold $450 million of three-year notes via its financing arm, Unilever Capital Corp, at a coupon of 0.45 percent.
"The rise in yields on Friday created some opportunities for some buy-and-hold investors who were in cash," said Matt Duch, portfolio manager at Calvert Investment Management in Bethesda, Maryland, which oversees about $12 billion in assets.
"New issuance is wide open right now," he said. "You have benchmark names which don't issue that often. The appetite for them is good."
Subdued US economic reports continue to favor lower US Treasury yields, participants said.
"We get employment data on Friday and if the number is on consensus and you expect no Fed action this week, that's still pretty bullish for Treasuries from a safe-haven perspective," Lyngen said.
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