* Long-dated yields at highest since late October
* Some downplay talk of bear market for bonds
* Treasuries market estimated loss: $61 bln last week
* Fed purchase, home builder data pare early losses
* Fed's Dudley hints QE3 still on an option
By Richard Leong
NEW YORK, March 19 U.S. Treasuries prices fell
on Monday, with longer-dated debt yields touching 4-1/2 month
highs and investors likely to trim their bond holdings further
on signs of an improving U.S. economy and some stabilization of
Europe's debt troubles.
Competition from fresh supply of higher-yielding corporate
bonds also reduced appetite for less-risky Treasuries,
reinforcing the view yields could rise further in near term.
"The momentum is with the (bond) bears. We could see yields
go up a little more from here," said Jeff Given, portfolio
manager at Manulife Asset Management in Boston, which manages
about $208 billion in assets globally.
The U.S. government debt market last week suffered its worst
week since June, as pension funds, insurance companies and other
large fund managers began re-allocating money into stocks and
other growth-oriented investments.
Afternoon selling by mortgage companies pushed bond prices
to session lows, analysts said. Mortgage companies typically
sell their hedges that use Treasuries and interest rate swaps
because they lose value as yields are rising quickly.
Benchmark 10-year Treasury notes fell for a
ninth consecutive session. They were last down 18/32 in price at
96-26/32 to yield 2.38 percent, up 6 basis points from late on
The 10-year yield has risen almost 60 basis points from late
January and is within striking distance of 2.42 percent, last
touched on Oct 28, according to Tradeweb.
The 30-year bond was last down 1 point, yielding
3.46 percent, up almost 6 basis points from Friday. It flirted
above 3.49 percent, the highest level since early September
2011, for a second time in three sessions.
Monday's trading volume ended slightly below average despite
another heavy overnight session. Overall volume was about 82
percent of its five-day average, according to Tradeweb.
BOND BEARS HAVE UPPER HAND
The sell-off in Treasuries intensified after benchmark
yields broke above their 200-day moving average last week, as
some investors were caught wrong-footed after betting yields
would hold in the tight range established since late last year.
The bond market's dramatic breakout, after the Fed was mum
about more monetary stimulus at its policy meeting last week,
has fueled speculation it is on the brink of a protracted bear
market. There have been signs investors are pulling money from
safe-haven government bonds into higher-yielding assets.
U.S. stocks extended last week's rally, buoyed by Apple
Inc's announcement that it will pay a dividend and buy
back stock. The Standard & Poor's 500 index was at its
highest since May 2008, four months before the collapse of
Lehman Brothers and the peak of the global credit crunch.
On the other hand, Treasuries succumbed to more selling on
Monday despite brief bouts of bargain-hunting after the bond
market suffered its worst weeks since last summer.
"We are seeing some value buyers here," said Guy LeBas,
chief fixed income strategist at Janney Montgomery Scott in
Treasuries briefly retraced losses earlier in the session on
the Federal Reserve's purchase of $5.1 billion of long-dated
Treasuries and slightly disappointing data on U.S. home builder
According to Barclays Capital, its Treasury total return
index fell 1.12 percent last week, the biggest single-week drop
since a 1.47 percent fall in late June.
LeBas estimated last week's drop shaved $61 billion in value
from the Treasuries market. There were $10.2 trillion of
government debt securities that could be traded by the public
outstanding at the end of February, according to the U.S. Bureau
of the Public Debt.
Many traders, however, reckon the market is simply
correcting after yields fell to rock-bottom levels last year on
safety bids as fears grew Greece could undergo a messy sovereign
"We are sitting up in a new range here. I don't see us up
significantly higher," said Larry Milstein, head of government
and agency trading at R.W. Pressprich & Co in New York.
Milstein and some analysts said if the bond sell-off
continues, it could force the Federal Reserve to embark on
another round of bond purchase to bring down mortgage rates and
other long-term borrowing costs.
"The Fed won't allow it," Milstein said, especially if
benchmark yields were to rise above the key support level of
The U.S. central bank has not yet decided whether to embark
on a third round of quantitative easing, or QE3, though it
remains an option, New York Fed President William Dudley said on