* Long-dated debt underperforms as flattening trades pause
* Treasury to sell $32 bln two-year notes
* Fed to buy $1 bln - $1.25 bln bonds due 2036-2044
By Karen Brettell
NEW YORK, March 25 U.S. Treasuries prices fell
on Tuesday with longer-dated debt underperforming, pausing a
four-day trend that has seen shorter-dated debt weaken faster
than longer bonds on speculation that the Federal Reserve may
raise interest rates sooner than expected.
Two-year and five-year notes have been the worst performers
since Federal Reserve Chair Janet Yellen said Wednesday that the
central bank could raise rates six months after its current
bond-buying program ends, suggesting a potential hike could
happen as early as spring of 2015.
That trend paused on Tuesday, however, as investors
evaluated whether the recent yield increases will be enough to
draw buyers to $96 billion in new short-and intermediate-dated
The Treasury will sell $32 billion in two-year notes on
Tuesday, $35 billion in five-year notes on Wednesday and $29
billion in seven-year notes on Thursday, in addition to $13
billion in reopened two-year floating rate notes on Wednesday.
Investors also reduced some flattening trades as they waited
on new data that will give signs about the strength of the
"We've moved a lot since Yellen's press conference last
Wednesday. The flattener is a crowded trade, you are seeing
people taking off some positions for event risk," said Charles
Comiskey, head of Treasuries trading at Bankof Nova Scotia in
U.S. single-family home prices rose in January and slightly
beat expectations, according to S&P/Case-Shiller home price data
released on Tuesday.
The Conference Board's consumer confidence index, new home
sales and the Richmond Fed's manufacturing and service sector
data are due at 10:00 am EDT (1400 GMT).
Two-year note yields fell to 0.44 percent, after
trading as high as 0.47 percent on Monday, the highest since
September and up from 0.34 percent before Yellen's remarks.
Five-year note yields dropped to 1.74 percent, after
increasing to 1.77 percent on Monday, the highest since Jan. 9.
Benchmark 10-year notes fell 7/32 in price to
yield 2.76 percent, up from 2.74 percent late on Monday, and
30-year bonds dropped 23/32 in price to yield 3.60
percent, down from 3.57 percent.
One large flattener trade was seen in U.S. bond futures on
the Chicago Board of Trade on Tuesday in spite of the general
trend. At 3:05 CT (0805 GMT), 9,200 contracts of U.S. two-year
Treasury futures traded at 109-22/32 while 5,200
contracts of 10-year bond futures traded at 123-17/32.
The Fed will buy between $1 billion and $1.25 billion in
bonds due from 2036 to 2044 on Tuesday as part of its ongoing
(Additional reporting by Richard Leong; Editing by Chizu