TREASURIES-Prices dip as Crimea tensions ease, before Fed meeting

Mon Mar 17, 2014 2:48pm EDT

Related Topics

* Crimea referendum eases safety bid for Treasuries
    * Fed seen likely to reduce bond purchases, alter guidance
    * Yields hold in recent range as economic data mixed

    By Karen Brettell
    NEW YORK, March 17 (Reuters) - U.S. Treasuries prices fell
on Monday after Sunday's referendum in Crimea passed without
major violence, reducing safety demand for U.S. government
bonds, and before the Federal Reserve's highly anticipated
meeting on Tuesday and Wednesday.
    Crimea formally applied to join Russia on Monday after its
leaders declared a Soviet-style 97-percent result in favor of
seceding from Ukraine in a referendum condemned as illegal by
Kiev and the West that will trigger immediate sanctions.
 
    The passing of the referendum helped investors unwind safety
buying that took place on Friday on concerns of increasing
tensions over the weekend.
    "The Russian bond market has rallied back, some of the
flight-to-quality we saw going into the weekend has subsided and
now we are waiting for the Fed on Wednesday," said Tom Tucci,
head of Treasuries trading at CIBC in New York.
    Benchmark 10-year notes fell 13/32 in price on
Monday to yield 2.69 percent, up from 2.65 percent late on
Friday and in the middle of a two-month long range that has kept
yields between 2.57 percent and 2.82 percent.
    The central bank is expected to continue to reduce the size
of its bond purchase program, but also alter its forward
guidance when it gives its statement from its two day meeting on
Wednesday.
    "They are going to move away from thresholds on specific
economic indicators and take a more wholistic approach that
depends on subjective evaluation of a broad array of economic
indicators. They are trying to move back to a more normal
approach to policy," said Ward McCarthy, chief financial
economist at Jefferies in New York.
    The Fed previously said that it would not raise interest
rates until joblessness fell to at least 6.5 percent, a pledge
that policymakers thought would hold until at least mid-2015.
But that rate hit a five-year low of 6.6 percent in January,
before rising to 6.7 percent in February.
    The Fed is seeking to hold short-term rates at record lows
as it gradually unwinds its monetary stimulus, and it is
expected to cut the size of its monthly bond purchases by an
additional $10 billion this week.
    Rates are seen as likely to continue to stay relatively low
in the near-term, however, as economic data still shows mixed
growth prospects, and after a recent bout of weakening data that
is seen at least partly due to bad weather.
    Prices fell slightly after data showing U.S. manufacturing
output rebounded more than expected in February and recorded its
largest increase in six months, in the latest sign that economic
activity is gaining momentum after being dampened by severe
weather. 
    "It's going to be an increasing challenge for the Fed to
keep short-term rates low, and I think they will succeed during
this period when we continue to see mushy economic data. But
beyond that, once we start seeing more solid growth, then we
will start seeing more volatility at the front-end of the
curve," said McCarthy.
    The Fed bought $2.54 billion in notes due 2019 to 2021 on
Monday as part of its ongoing purchases. It will buy between $1
billion and $1.25 billion in bonds due from 2036 to 2044 on
Tuesday.
    A New York Federal Reserve gauge of manufacturing in New
York state also rose in March though at a slower rate than
forecast, as new orders and inventories jumped. 
    U.S. homebuilder sentiment edged up in March but sentiment
remained mostly poor as concerns linger, the National
Association of Home Builders said on Monday.
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.