Treasuries rise

US Treasury prices rose on Tuesday after a report that President Barack Obama would propose a freeze on discretionary non-security spending in his State of the Union address. Treasuries extended gains, with the 30-year bond climbing over a full point in price, after solid demand in the first of this week's debt auctions - the sale of $35 billion of two-year notes.
The Federal Reserve also bought $7.72 billion in Treasuries with maturity dates ranging from February 15, 2015 to June 30, 2016, which was supportive of the Treasury's five-year note sale scheduled for Wednesday. A two-day Federal Reserve meeting that began on Tuesday offered a constructive backdrop. Policymakers are expected to extend the central bank's accommodative monetary policy.
"A budget freeze should limit the issuance," said John Spinello, chief fixed-income technical strategist at Jefferies & Co in New York. The benchmark 10-year Treasury note shot up 24/32 in price with the yield slipping to 3.32 percent from 3.41 percent late on Monday, while the 30-year bond was up 1-13/32 in price with its yield sliding to 4.47 percent from 4.56 percent the previous day.
"The government's fiscal position is on everybody's mind," said James Barnes, senior fixed-income portfolio manager at National Penn Investors Trust Company in Reading, Pennsylvania, which has $9 billion in assets under management. Concerns about excessive debt once focused on corporations, then on households and municipalities, he said.
"We're definitely headed toward more scrutiny of the US Treasury and its outstanding debt," Barnes said. The yield curve flattened as long-dated Treasuries outperformed shorter sectors of the maturity curve, where the Treasury is selling securities this week.
The Treasury auctioned the two-year notes at 1 pm EST (1800 GMT) on Tuesday and will sell $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday. Tuesday's two-year note auction was met with about average demand, alleviating some worries over appetite for the debt and pushing bonds to extend the earlier rally.
Among the three maturities to be sold this week, two-year notes were trading 2/32 higher in price to yield 0.60 percent, down from 0.63 percent late on Monday, while five-year notes rose 12/32, their yields easing to 1.93 percent from 2.01 percent on Monday. Seven-year notes gained 19/32, their yields easing to 2.66 percent from 2.75 percent late on Monday. US Treasury prices rose early in the trading session but temporarily erased gains after the Conference Board said its index of consumer confidence rose in January. The jump was bigger than economists had forecast.
Improved economic news tends to make investors more risk tolerant, benefiting riskier assets like stocks and commodities at the expense of safe-haven US government debt. The Fed began its meeting on Tuesday and will issue a policy statement on Wednesday at the end of the gathering. The meeting is the first of the year and one in which two of the central banks' most vocal critics become voting members of the policy-setting Federal Open Market Committee.