US bond yields edge down ahead of 3-year auction

NEW YORK: US Treasury yields dipped on Monday in advance of the government's $24 billion debt auction, part of its $56 billion sale of notes and bonds this week.

Reduced trading volume due to Passover and Easter holidays this week may end up depressing bids for the latest wave of Treasuries, analysts said.

"The auctions this week are going to be a challenge," said Sharon Stark, fixed income strategist at InCapital LLC in Boca Raton, Florida.

The US Treasury Department will sell $20 billion in 10-year notes on Tuesday and $12 billion in 30-year bonds on Wednesday.

Geopolitical tension in the Middle East and the Korean peninsula, following a somewhat weaker-than-expected March US jobs report released on Friday, has underpinned safehaven demand for low-risk government debt, analysts said.

The decline in bond yields was limited by remarks from Federal Reserve officials on the possibility the US central bank would begin paring reinvestments into Treasuries and mortgage-backed securities.

Earlier Monday, St. Louis Fed President James Bullard said the Fed could begin winding down its $4.5 trillion balance sheet later this year.

Wall Street's top banks see the central bank making such a move in 2017, according to a Reuters poll conducted on Friday.

"The Fed is worried about complacency in the market. They want to be as clear as possible and give the market plenty of lead time," Stark said.

Investors await further clues on balance sheet normalization from Fed Chair Janet Yellen who will participate in a discussion on public policy at the University of Michigan at 4:10 p.m. (2010 GMT).  The benchmark 10-year Treasury yield was 2.364 percent, down 1 basis point from late on Friday, while the 30-year yield was 1 basis point lower at 2.988 percent.

In "when-issued" activity, traders expected the Treasury will sell the upcoming three-year note at a yield of 1.523 percent, compared with 1.630 percent at last month's three-year auction, Tradeweb data showed.

US financial markets will close on the Good Friday holiday.