Treasuries steady

US Treasury debt prices ended steady in light, choppy trading on Monday, signalling investors' reluctance to make big bets as they prepared for $66 billion in new supply. The latest wave of debt comes after the government averted a shutdown this weekend. Investors will gauge the reception for this week's supply after a three-week increase in yields.
While yields stabilised on Monday, data suggested traders are betting that this week's auctions could disappoint due to concerns about the need to raise the US government's $14.3 trillion debt ceiling, rising inflation and how quickly the Federal Reserve will remove monetary stimulus.
"The market does seem very jittery," said David Keeble, global head of interest rates strategy at Credit Agricole Corporate and Investment Bank in New York. "It's a very whippy market and you have some very short positions out there." The latest data from the Commodity Futures Trading Commission showed speculators went net shorts on Treasuries for the first time in six weeks.
PIMCO, which runs the world's biggest bond fund, shifted to a short position in Treasuries in March and raised its cash holdings on concerns about the US fiscal outlook. The US government will sell $32 billion in new three-year notes on Tuesday and $21 billion and $13 billion in 10-year and 30-year reopenings on Wednesday and Thursday. Benchmark 10-year notes were up 1/32 in price for a yield of 3.58 percent, flat from late Friday. The 10-year yield initially tested chart support at 3.60 percent on players adding curve-steepener trades and somewhat disappointing results at the Fed's latest bond purchase, analysts said.
Then a downturn on Wall Street, an accelerated drop in oil prices and dovish comments from Fed Vice Chair Janet Yellen in the afternoon helped push yields from their session highs.
The 10-year yield has risen almost 50 basis points from its lows of 3.14 percent reached in mid-March days after the devastating Japanese quake that stoked a safehaven rally in Treasuries. Tuesday's three-year note auction could be volatile, as a result of trading in the repurchase market, where the notes are trading at negative yields of around 1 percent, analysts said.
Short-dated Treasury auctions have typically fetched solid demand. But the negative three-year yield in the repo market raised the risk of lighter-than-usual bidding and demand for higher yields because it has become more expensive to finance them than at the last auction, they said.
Citigroup Treasury strategist Joe Leary predicted the three-year supply could "tail slightly," meaning it will clear at a higher-than-expected yield. In the "when-issued" market, traders expected the US Treasury would sell the upcoming three-year notes due April 2014 at a yield 1.3650 percent. This compared with a 3 pm (1700 GMT) yield of 1.310 percent on the most actively traded three-year issue in the open market.