US Treasury debt yields weakened on Tuesday in quiet trading, moving in tandem with Japanese government bond yields, after the Bank of Japan kept interest rate targets unchanged and its top official quashed speculation of a move away from an easy monetary policy. Benchmark US 10-year yields, which move inversely to prices, fell for the first time in five days, while those on 30-year bonds sank to a one-week low.
In Japan, the 10-year Japanese government bond yield dipped to 0.070 percent, slipping further from a six-month high of 0.090 percent set last week. JGB yields fell on the BoJ decision and after Governor Haruhiko Kuroda said he saw no immediate need to raise rates or slow the bank's purchases of exchange-traded funds - one of its stimulus measures.
"This rally in Treasury prices is coming from overseas, especially the comments from the BoJ that they will keep policy accommodative," said Subadra Rajappa, head of US rates strategy at Societe Generale in New York. In late trading, US 10-year Treasury yields fell to 2.627 percent, from 2.663 percent late on Monday.
US 30-year bond yields, meanwhile, hit a one-week low of 2.879 percent and was last at 2.907 percent, down from Monday's 2.927 percent. US 2-year note yields were also down, trading at 2.048 percent.
A solid $26 billion 2-year note auction added to bids in Treasuries. The note's high yield of 2.066 percent was lower than yield expected at the bid deadline and was the highest award rate since September 2008. "Despite the high yield, we're not confident that owning (2s) here is a winning strategy," said Aaron Kohli, rates strategist, at BMO Capital Markets in New York.
Bids totaled nearly $83.8 billion for a strong 3.22 bid-to-cover ratio, the highest since September 2015. Indirect bidders, which include foreign central banks, took 58.3 percent versus 40 percent from the previous auction. Societe's Rajappa said the central banks are still in focus over the next two weeks, with upcoming policy meetings at the
European Central Bank later this week and the Federal Reserve next week. The Fed is not expected to raise interest rates next week, as investors priced in a rate hike in March. The market though was more focused on the ECB.
"Both the ECB and the BoJ are stuck between a rock and a hard place," said Rajappa "If they sound too hawkish, then their currencies start to appreciate and it kind of hurts their ability to make progress on the inflation front."