Treasuries rise

US Treasury prices rose on Monday on expectations the Federal Reserve will leave interest rates near zero for the rest of year, fostering a friendly climate to own bonds in the near term. In the lowest-volume day for Treasuries so far this year, according to IFR Markets, dealer purchases of Treasuries to hedge upcoming corporate bond supply helped hold down benchmark yields near their lowest levels in nearly a month.
The Fed's $7.24 billion purchase of medium-term Treasuries, part of its quantitative easing program to help the economy, also lifted bond prices. "It's a bit of spotty buying in a thin market," said Suvrat Prakash, interest rate strategist at BNP Paribas in New York. "There's quite a bit of issuance in the corporate market in the next couple of weeks."
Companies are expected to sell at least $10 billion to $15 billion in high-grade bonds this week, according to IFR, a unit of Thomson Reuters. In the meantime, the US Treasury will roll out its first significant bout of bond supply since Standard & Poor's reduced its credit outlook on the United States a week ago. It will auction $35 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday, and $29 billion in seven-year notes on Thursday.
In the "when-issued" market, traders expect the Treasury to sell the new two-year debt at a yield 0.68 percent, below the high yield of 0.789 percent at the March auction. Two-year notes sold last month were up 1/32 in price to yield 0.64 percent, down 2 basis points from late Thursday, while 10-year notes were up 9/32, yielding 3.36 percent, down 3 basis points from Thursday.
The US bond market was closed on Friday for the Easter holiday. In addition to bond supply, investors are preparing for the Fed's two-day meeting that begins on Tuesday. The Fed will release a policy statement at 12:30 pm EDT (1630 GMT) on Wednesday, followed by Fed Chairman Ben Bernanke's press conference at 2:15 pm EDT. Data suggest traders are betting on a bond-friendly statement from the Fed and dovish remarks from Bernanke at his first-ever post-FOMC conference.
The latest Commitments of Traders data from the Commodity Futures Trading Commission showed speculative traders raised their bets last Tuesday that bond and interest rate futures will rise, even ahead of this week's Treasury supply and after S&P's revised outlook on the United States.
The US central bank is widely expected to signal it will finish its $600 billion bond program, known as QE2, by midyear and reassure investors it will stick with a near zero target for the federal funds rate for an "extended period" in a bid to support a still fragile economy, analysts said.