US yields steady, just below 8-month high

LONDON: US Treasury yields were steady on Monday after reaching eight-month highs in the previous week, as investors bought back in after a sharp sell-off fueled by expectations of less easy monetary policy this year.

Ten-year US Treasury yields were flat at 1.90 percent after reaching 1.975 percent on Friday - its highest since late April. Borrowing costs were steady throughout maturities, with thirty-year yields also little changed on the day at 3.10 percent.

The move higher in yields last week was driven by minutes from the Federal Reserve showing officials are increasingly concerned about the impact of quantitative easing (QE).

Analysts took it to mean the central bank could unwind ultra-easy monetary policy earlier than expected - a view reinforced by two top Fed officials suggesting on Friday asset purchases could be halted this year.

"There was certain degree of inevitability as we started turning back to more normal volumes (and as) real money investors returned, that they would look at the back-up in yields we've had and, being naturally short both of duration and allocation, they would put some money to work," Marc Ostwald, strategist at Monument Securities said.

"There is a lot of money still out there from the QE that we've had," he added.

The rate outlook had brought US Treasury yields to a higher trading range but ongoing fiscal concerns would likely limit any bond sell-off, traders said.

While US lawmakers found a temporary solution for the so-called "fiscal cliff" of tax hikes and spending cuts due to be automatically triggered early this year, the United States risks defaulting on its debt if Congress doesn't give the government permission within a few months to increase borrowing.

"We are at the risk now of negative headlines in the fiscal cliff," one trader said. "It's far from a done deal, a good conclusion."

But a bout of supply this week was also expected to limit gains over the near-term, traders said. The Treasury will offer three-year notes on Tuesday, 10-year notes on Wednesday and 30-year bonds on Thursday.

Center>Copyright Reuters, 2013