A US Treasuries rally that has pushed benchmark 10-year yields below 3 percent paused on Monday as investors tentatively took on some risk, nudging prices of safe-haven US debt down and yields up. Stocks finished little changed, also pausing from six weeks of declines that were driven by signs the US economic recovery is slowing.
Benchmark 10-year Treasury notes slipped 5/32 in price, their yields rising to 2.99 percent from 2.98 percent on Friday. Benchmark yields dipped to 2.92 percent last week, marking the lowest since early December. Investors were reluctant to take Monday's price action as the end of the Treasuries price rally that has dominated since early April.
"Recent price action seems to suggest that without panic in equities, or a significant worsening of the global political environment, bonds and notes could be running out of interested buyers. In other words, in a ridiculously low-yield environment, investors appear to be more comfortable in cash positions or even in riskier income securities," said Carley Garner, senior analyst at DeCarley Trading in Las Vegas. Treasuries eased even though Standard & Poor's cut Greece's long-term ratings by three notches to junk territory, saying the country is increasingly likely to restructure its debt in a way the ratings agency would consider a default.
The imminent end of the Federal Reserve's second phase of quantitative easing also weighed on Treasuries. The Fed has added $686 billion in Treasury securities to its balance sheet since mid-November, when it began its latest asset purchase program, economists at Goldman Sachs observed in a research note. Some of the purchases were associated with the reinvestment of proceeds from the Fed's portfolio of mortgage-backed securities, they noted.
The Fed is expected to keep reinvesting proceeds from maturing securities during the summer months, but not start a third program of large-scale asset purchases. Eleven Fed "buybacks" of Treasuries are scheduled before the next coupon auction on June 27, a potential technical support for the market, analysts said. The Fed bought $4.624 billion in Treasury coupons on Monday. Thirty-year bonds shed 12/32, their yields rising to 4.21 percent from 4.18 percent on Friday.