US Treasuries fell on Monday as upbeat economic data and gains on Wall Street reduced bonds' safe-haven allure and overshadowed anxiety over the political unrest in Egypt. The day's losses will pare Treasuries' modest gain recorded so far in January. Growing worries over the government's record $1.5 trillion deficit and $14 trillion debt load have hurt bonds, especially longer-dated issues.
They have increased the cost to hedge against a US default, which has been hovering at a 11-month high. There had been fears over the weekend that tension in Egypt would escalate and spill over to the rest of the Middle East, interrupting oil output and global trade via the Suez Canal.
Egypt's armed forces pledged not to fire on peaceful demonstrators on Monday, while President Hosni Mubarak offered talks on sweeping reforms with opponents. With political worries on the back-burner for now, traders and investors turned their attention to domestic economic and fiscal developments and their impact on growth and inflation.
Data on US consumer spending and a report on Midwest factory activity reinforced the notion of an expanding economy, albeit bogged down by a hefty federal deficit and high unemployment. The US Treasury said it plans to borrow $237 billion in net marketable securities in the January-March quarter. That is $194 billion less than its estimate issued in November due to the wind-down of its Supplementary Financing Program for the Federal Reserve.
The price on benchmark 10-year notes shed 14/32 for a yield of 3.39 percent, up from 3.33 percent late on Friday, while the 30-year bond fell 25/32 to yield 4.59 percent, up from 4.54 percent on Friday. On the last trading day in January, Treasury trading volume was 20 percent above its five-day average and 5 percent higher than its 30-day average, according to Tradeweb.
In the derivatives market, the five-year cost to insure against a US default was last quoted at 50.0 basis points, versus 51.4 basis points on Friday, according to Markit. The three major US stock indexes closed up 0.5 percent to 0.8 percent. Treasuries rebounded after a dismal December but lagged stocks on an improving outlook on the US economy.
Month-to-date, Barclays Capital's total return index on Treasuries was up 0.16 percent. This compared with a 1.80 percent drop in December and a 1.58 percent rise in January 2010. Long-dated Treasuries dragged down the entire sector. The spread between two-year and 30-year yields ended at a record wide of 401 basis points on Monday, compared with 372 basis points at the end of 2010.