Stock market losses fuelled a bid for safe-haven US government debt on Tuesday, a dynamic that, if continued, could allow US Treasuries to extend their recent rally. Overnight selling and some profit-taking kept bonds in the minus column for the first part of the day, but geo-political tensions, and especially weakening stocks, renewed investors' appetite for Treasuries, gradually lifted them into the plus column and put yields back on a downward path.
Major stock indexes were down 0.85 percent, 1.04 percent, and 1.15 percent, respectively. An early round of safe-haven buying came into Treasuries as reports of protesters clashing in Tehran hit the news wires, said Thomas di Galoma, head of fixed-income rates trading at Guggenheim Securities in New York. The content of Federal Reserve Chairman Ben Bernanke's twice-yearly report on monetary policy before the Senate Banking Committee was mainly neutral for the market.
Simultaneously, the Institute for Supply Management (ISM) said the US manufacturing sector grew in February at its fastest rate since May 2004. The report was in line with market expectations. US Treasury trade volume of $236.04 billion around 10 noon ET (1700 GMT) was just above the 20-day moving average for the period of $215.534 billion, ICAP said.
Fed purchases, which supported the middle of the yield curve on Monday, were smaller on Tuesday with the central bank buying $1.89 in coupons with maturities ranging from August 15, 2028 to February 15, 2041 of the $7.512 billion submitted. Traders said resistance for 10-year yields lay at 3.44 percent to 3.415 percent and support at 3.48 to 3.505 percent.
Benchmark 10-year notes flat on the day, having erased earlier losses. They yielded 3.43 percent. Five-year notes were up 2/32, their yields easing to 2.13 percent from 2.15 percent on Monday. Prices of two-year notes rose 1/32, their yields easing to 0.68 percent from 0.71 percent on Monday.
News from the Treasury Department on Monday that it had revised Beijing's holdings of US Treasury debt sharply higher had no impact on Treasuries prices, analysts said. The report's benchmark revisions attributed Treasuries holdings to China that were previously counted in other countries where the transactions were made, cementing Beijing's status as the largest US creditor.