US Treasury prices fell on Wednesday as investors cashed out of the richest market for Treasuries in decades, with higher stocks and a milder report on the US economy rendering the ultra-safe, low-yielding securities less appealing. The 10-year Treasury yield rose from its lowest in at least 60 years of 1.908 percent, touched on Tuesday.
Analysts said without a major escalation in the European debt crisis or news that the US economy had completely stopped growing that may be as low as it gets. "There probably isn't much more Treasury prices can do from here," said David Coard, head of fixed income sales and trading at Williams Capital Group in New York. "It looks like the economy is still growing at a very slow pace and it's still very vulnerable, but it's not falling out of bed either."
The Federal Reserve on Wednesday released its Beige Book, a collection of reports on the US economy through early July gathered by the 12 regional Fed banks. Growth was modest or slight in five districts, while the remaining seven described activity in terms such as "very subdued" or "more slowly."
"It shows weakness but we were all expecting that, and that's why we're not getting a boost in the Treasury market," said Rick Klingman, a Treasury trader at BNP Paribas in New York, who noted volume in the market had not been especially heavy. Benchmark 10-year Treasury notes were last trading 20/32 lower in price to yield 2.05 percent, up from 1.98 percent late Tuesday, while the 30-year bond dropped 1-26/32 in price to yield 3.36 percent from 3.27 percent.
The major US stock indexes all closed up more than 2 percent on Wednesday. Expectations that US President Barack Obama is planning some $300 billion in tax cuts and government spending as part of a job-creation package to be unveiled on Thursday also helped cut any safety bid for bonds.
Investors were also willing to take on more risk on optimism that a ruling by Germany's top court will smooth the way for Germany to participate in bailout packages that are expected to help ease the European debt crisis. "As risk assets bounce Treasuries are declining, but price weakness remains corrective," said MacNeil Curry, technical strategist at Bank of America Merrill Lynch in New York.
Investors' next focus will be a speech by Fed Chairman Ben Bernanke on the US economic outlook on Thursday at 1:30 pm EDT (1730 GMT). Special attention will be paid to whether he drops any hints as to the potential implementation and/or timing of Operation Twist, a strategy aimed at lowered longer-term borrowing costs.