LONDON: US Treasuries were steady on Monday, stabilising after a sell-off in longer-dated bonds last week as the Federal Reserve's latest stimulus announcement underpinned riskier assets.
Ten-year US Treasuries yields were little changed at 1.87 percent, with one trader expecting them to test 2 percent, perhaps as soon as this week. The yield hit its highest since May on Friday at 1.89 percent.
"The flight to quality bid has left the market (somewhat)," the trader said.
In addition to US central bank support, in the form of more quantitative easing, a series of events in Europe which could have unsettled markets have instead given investors some confidence that policymakers could make headway in stemming the euro zone debt crisis.
They include the European Central Bank's commitment to buy unlimited amounts of government bonds, if a country asks the euro zone rescue fund for help, and the German constitutional court's decision to allow the rescue fund to go ahead.
"You can argue the merits of QE3 (third round of quantitative easing) but at the end of the day you still have to play the market and the current move is to sell fixed income and buy risky assets," the trader said.
The Fed said on Thursday after a two-day policy meeting that it would buy $40 billion a month in mortgage-backed bonds on an open-ended basis. It also prolonged its pledge to keep interest rates near zero until mid-2015, from late 2014.
Thirty-year US yields were little changed at 3.09 percent, hovering near their highest level since May when they stood at 3.121 percent.
"The market is right in (driving) yields higher at the moment because there is a lot of uncertainty that has been reduced especially in Europe and of course we have this boost from QE3," Philip Marey, strategist at Rabobank said.
"For (yields) to go further upwards, we should have a stronger (US) recovery and we are not having that, and to go much lower, you would need something like Spain not willing to apply for ESM (euro zone rescue funds)," Marey said.
As a result, Marey expected 10-year US yields to trade more or less sideways at around 1.90 percent over the next few weeks.
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