NEW YORK: Intermediate-debt underperformed long-dated bonds on Monday as investors prepared for new five-year and seven-year note supply, after the Treasury sold $27 billion in new two-year notes to solid demand.
Yields rose earlier on Monday as equities held near record levels, reducing safety buying, even as oil prices resumed their downward march.
Intermediate-dated debt weakened on Monday afternoon as investors prepared for a $35 billion sale of five-year notes on Tuesday and $29 billion in seven-year notes on Wednesday.
Short and intermediate-dated bonds are most sensitive to interest rate increases, with liquidity also expected to decline this week due to the Christmas holiday.
"They tend to require more of a concession to take down," said Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut. "If we can push the market a little toward higher yields in those sectors we might see a solid auction."
The new two-year notes sold at a high yield of 0.703 percent, around a basis point below where they traded before the auction. Dealers took a larger allocation than average.
The government will also sell $13 billion in reopened two-year floating rate notes on Tuesday.
Treasury yields increased from two-month lows last week as stocks gained, after the Federal Reserve said it would take a "patient" approach toward raising interest rates.
Benchmark 10-year notes were last little changed in price to yield 2.164 percent.
"With the bounce in the Dow and in equity markets globally, you're starting to see some of that 'risk off' trade come off and we're starting to see some 'risk on' .... I don't think there's anything new for bonds to make a move here to lower yields," said Tom di Galoma, head of rates and credit trading at ED&F Man Capital Markets in New York.
The potential for renewed tensions between Russia and Ukraine, however, could help add a bid to US debt as the oil price drop roils the Russian currency, said di Galoma.
Oil prices fell on Monday after Saudi Arabia's powerful oil minister said OPEC would not cut production at any price.
US crude's front-month contract fell more than 3 percent to $55.31 barrel. It had closed up nearly 5 percent on Friday, the largest gain since August 2012, as some traders took profits on short positions after prices hit five-year lows.
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