U.S. TREASURIES: Bonds Pare Losses But Hold Near 4-Month Lows; Auctions Weigh – 10-Yr 1.759%

U.S. Treasuries fell Tuesday to the highest yield/lowest price levels since early June ahead of a run supply while coming data is seen improving. Expectations for a rate increase at the Dec.13 – 14 Federal Open Market Committee meeting crept higher. The market was able to trim losses as the Fed’s September Labor Market Conditions Index missed expectations, falling to -2.2 from -1.3 (revised from -0.7).

The 30-year recently traded 2.50% from a slide to a low of 2.516% from a 2.46% close Friday. The 10-year is near 1.762% from a low of 1.7815% and a 1.73% close. The five-year recently traded 1.298% from a 1.3125% low and 1.265% Friday. The two-year recently was 0.87% having dropped to 0.8865% from 0.838%.

The curve trade has pulled back from a steeper slope with the yield differential between the two- and 10-years little changed near 89 from an early push through 90 while the five- and 30-year yield spread is 1.20 from 1.19 plus Friday.

Treasury supply is pressuring prices with auctions packed into the holiday-shortened week. Tuesday offers $42 billion in three- and $36 billion six-month bills, $40 billion in four-week bills, and $20 billion in 52-week bills at 11:30 a.m. ET. There will also be $24 billion new three-years and $20 billion reopened 10-year notes Wednesday as well as $12 billion reopened 30-year bonds Thursday.

Key items on the week’s event calendar include the September FOMC minutes Wednesday. The majority of data is slated for Friday with the September retail sales, the producer price index and October consumer sentiment are all expected to head higher.

Fed speakers in the week include New York President William Dudley and Kansas CIty’s Esther George on Wednesday, Philadelphia’s Patrick Harker Thursday with Boston’s Eric Rosengren and Chair Janet Yellen scheduled for Friday.

Minneapolis Fed’s Neel Kashkari participates in a Q&A at Bethel University at 11 a.m.

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