TREASURIES-Prices fall as weak TIPS auction weighs

Fri Jun 20, 2014 9:13am EDT

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* Prices fall in light trading
    * Economic data in focus next week
    * US to sell $94 bln 2, 5, 7-yr notes

    By Karen Brettell
    NEW YORK, June 20 (Reuters) - U.S. Treasuries yields rose on
Friday on continued follow-through from Thursday's weak sale of
inflation-linked bonds, after a volatile two days of trading
sparked by a surprisingly dovish Federal Reserve meeting on
Wednesday.
    Prices fell on Thursday after the government had weak demand
for 30-year Treasury Inflation-Protected Securities (TIPS), with
weakness carrying into Friday.
    Traders and investors also continued to reposition on Friday
as they adjusted expectations of when the Fed is likely to begin
raising interest rates. The U.S. central bank played down a
recent uptick in inflation on Wednesday, which has hurt
longer-dated bonds and made the yield curve steeper.
    "There's the thought I think that maybe they will let
inflation run a little bit higher and not raise rates," said Dan
Mulholland, managing director in Treasuries trading at BNY
Mellon in New York.
    The long-dated yield curve flattened slightly on Friday but
stayed near its steepest levels in two weeks as investors
unwound bets that the curve will flatten further and added to
bets there will be further steepening.
    The curve between 5-year notes and 30-year bonds
 has increased to 178 basis points from a
five-year low of 165 basis points on Monday.
    Benchmark 10-year notes were last down 9/32 in
price to yield 2.66 percent, up from 2.62 percent late on
Thursday.
     With no major economic releases on Friday, investors are
next focused on a number of indicators due next week, which
cover housing, manufacturing, durable goods, consumer confidence
and gross domestic product.
    The Treasury is also due to sell $94 billion in new debt,
including $30 billion in two-year notes on Tuesday, $35 billion
in five-year notes on Wednesday and $29 billion in seven-year
notes on Thursday.
    

 (Editing by Nick Zieminski)
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