NEW YORK: US Treasury debt yields inched higher on Tuesday after sharp falls the day before as investors consolidated positions in a week generally thin on economic data, with no real fundamental driver following last Friday's unexpectedly soft U.S. jobs report.
Volume was generally light, with the U.S. Treasury department kicking off $58 billion in coupon sales this week, starting with the auction of $24 billion in three-year notes later on Tuesday. The three-year note sale, however, is expected to have little impact on the Treasury market, analysts said.
"The market has come to a point where it's comfortable understanding where the Federal Reserve is headed, that they are truly meaning what they say, which is they are data-dependent," said George Goncalves, head of U.S. rates strategy at Nomura Securities International in New York.
"And as long as data is weak, there's nothing more they can add to the discussion."
Minneapolis Fed President Narayana Kocherlakota, who is not a voting member of the Federal Open Market Committee, echoed the U.S. central bank's dovish stance on Tuesday. He said the Fed could afford to wait until well into next year to raise interest rates with the U.S. economy still years away from rising to normal levels of inflation and employment.
The Treasuries market reacted little to Kocherlakota's remarks.
In mid-morning trading, U.S. 10-year Treasury prices were down 4/32 to yield 1.916 percent, from 1.900 percent late on Monday. U.S. five-year notes slipped 5/32 with a yield of 1.339 percent.
U.S. 30-year Treasuries prices, meanwhile, was up 8/32 in price, yielding 2.554. On Monday, U.S. 30-year prices fell more than a point.
"We're going to see this ratcheting up of the curve, but it won't be a straight line, and when yields cheapen on the back end, people take advantage," said Nomura's Goncalves. "This low grind higher in rates will be met by buyers who missed out in the last rally."
Analysts were optimistic about Tuesday afternoon's U.S. three-year note auction, given the issue's recent solid performance.
Expectations that the Fed might delay raising interest rates to September, if not next year, could underpin the auction at the margin, said Action Economics. Demand from indirect bidders, which are major central banks, should be decent, given negative yields on many shorter-dated European and some Asian sovereign notes, the research firm added.
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