US Treasuries prices fell on Wednesday as prospects that the International Monetary Fund will raise funds to help ease pressures on countries reeling from the euro zone crisis reduced the safe-haven bid for bonds. The IMF is seeking to boost its war chest by $600 billion, but some nations insist that Europe must first do more to support its ailing members, international financial sources said on Wednesday.
Greece and its creditors were also back at the drawing board to discuss all terms of a planned bond swap in a last-ditch bid to overcome an impasse in talks and agree to a voluntary deal. "There is talk and speculation that Greece is going to get another bailout package or come to terms on the next round of their debt issuance," which is helping risk assets, said Scott Graham, head of government bond trading at BMO Capital in Chicago.
Benchmark 10-year note yields backed away from resistance levels at around 1.84 to 1.85 percent, a level that is being closely watched because a break below that is seen as likely to spur a further rally. If yields fall below these levels they may next retest their more than 60-year low of 1.67 percent, which could open the notes to challenge yields of 1.45 percent or possibly even 1.00 percent, according to technical analysts at Bank of America Merrill Lynch.
"This zone is critical as a break would open the 1.67 percent lows and threaten a resumption of the larger secular bull trend," the analysts said in a report. The 10-year notes last traded down 15/32 in price to yield 1.90 percent, up from 1.86 percent on Tuesday. The yield on US 10-year Treasury inflation-protected securities hit a record low in the wake of government data that producer prices unexpectedly fell in December.
On the other hand, the 10-year TIPS break-even rate, a gauge of long-term inflation expectations, turned higher because the core producer prices - which exclude volatile food and energy costs - rose more than expected, signalling that underlying inflation is not as benign as previously thought. The bid yield on 10-year TIPS touched minus 0.244 percent, surpassing the previous intraday record of minus 0.2150 percent set on Tuesday, according to Tradeweb.
The 10-year break-even rate, or the spread between the 10-year TIPS yield and the regular 10-year Treasury yield, was quoted at 2.05 percent, up nearly 2 basis points. Bond purchase data from November showed that foreign safety buying of US debt remained strong in November, even as China's holdings fell to the lowest level in a year, the US Treasury said on Wednesday.
"The European crisis continues to lead to a very strong safe-haven bid," said Eric Green, interest rate strategist at TD Securities in New York. "The demand from elsewhere in the world remains exceptionally robust, and as a proportion of total purchases Treasuries continue to be the favourite." China's holdings of US Treasuries fell $1.132 trillion in November from $1.134 trillion the previous month.
Japan raised its holdings of US Treasuries to $1.038 trillion from $979 billion in October, which was reflected in the increase in the country's foreign securities based its reserve data. Longer-dated Treasuries extended price losses in the afternoon after the Federal Reserve completed its purchase of $4.65 billion of notes due between 2013 and 2021. Dealers submitted $15.90 billion for purchase as part of the Fed's Operation Twist program designed to lower longer-term borrowing rates.