US yields edge down as profits booked before Fed, BoJ meetings

NEW YORK: US Treasuries yields slipped on Monday as traders booked profits made on curve-steepening bets ahead of monetary policy meetings this week at the Bank of Japan and the US Federal Reserve.

Trading volume was light amid a market holiday in Japan and a dearth of US economic data.

"We swung too pessimistically with curve steepening. It's just some repositioning ahead of the Fed and BOJ meetings," said Jason Celente, senior fixed income portfolio manager at Insight Investment in New York.

Traders reduced their positions on longer-dated global bond yields rising faster than short-dated yields following the European Central Bank's decision on Sept. 8 to refrain from extending its bond purchase program worth more than one trillion euros beyond March 2017 for now.

The ECB move raised speculation major central banks would no longer pursue more quantitative easing and other unconventional policies to drive down long-term borrowing costs and stimulate economic growth.

Some traders anticipate the BoJ might embark on a move to lower its target interest rate deeper into negative territory, and reduce its bond purchases to hold down long-dated yields.

"There's more of a potential surprise from the BoJ. The Fed is not going to do much," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.

Meanwhile, analysts widely expect the Fed to hold short-term interest rates at the current 0.25-0.50 percent target range.

Traders, however, remain skeptical of policy changes from either central bank on Wednesday.

Interest rates market implied traders saw a 17 percent chance the BOJ would cut its target rate to -0.30 percent from -0.10 percent on Wednesday, while they priced in an 11 percent probability the Fed would raise rates, Reuters data showed.

Separately, there was scant safehaven buying related to an explosion that injured 29 people in New York City on Saturday, traders and analysts said.

Benchmark 10-year Treasury notes were up 2/32 in price for a yield of 1.694 percent, down 0.7 basis point from late on Friday.

Treasury yields briefly turned flat after a private gauge on US home builder sentiment unexpectedly rose in September to its strongest level in 11 months.

The yield gap between five-year and 30-year Treasuries contracted to 124 basis points after reaching 130 basis points last Thursday, which was its widest level since June 27, according to Tradeweb.