Treasuries ease

US Treasury traders were watching the spread between 10-year and 30-year yields for a profit-taking opportunity on Thursday, as prices in the Treasury market eased slightly in light trading. The spread between 10-year yields and 30-year yields has been on a narrowing trend since reaching a seven-week wide of 118 basis points on March 16.
"Between 108 and 105 I think you might see some people taking profits on that trade," said John Spinello, Treasury bond strategist at Jefferies & Co in New York. The spread was most recently 110, as the 10-year yield rose slightly in light selling.
Selling in 10s accelerated after the Treasury Department's $11 billion auction of 10-year inflation-protected securities drew a high yield that was nearly five basis points higher than the simultaneous open market yield for TIPS. Treasury analysts said the aggressive dealer bidding at the auction was likely an indicator of short-covering, rather than a direct statement on inflation expectations in the marketplace.
Nevertheless, the spread between 10-year nominal yields and TIPS yields widened to 247 basis points after the auction. "Positioning should hopefully be cleaner after today and the most of the real yield concession ahead of auction has been erased," wrote George Goncalves, head of US rates strategy at Nomura Securities in New York, in a note to clients.
"Recent media reports have suggested inflation expectation is still on investors' minds despite the Federal Reserve's belief that commodity shocks will be 'transitory.' Given TIPS valuations have largely priced this in, we expect to remain tactical and buy breakevens on dips in the weeks ahead." TIPS breakevens have rallied since September in line with rising oil prices, as political instability in the Middle East increased concerns that crude oil supply could decline.
Cash Treasury prices fell but pared some of their early losses after data pointed to a decline in US manufacturing last month. Benchmark 10-year notes were last down 13/32 in price to yield 3.41 percent, up from 3.35 percent late on Wednesday. The notes had traded as high as 3.39 percent before the data. The price of 30-year bonds fell 11/32 to yield 4.48 percent, up from 4.46 percent at Wednesday's close.