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TREASURIES-U.S. bond prices steady before 3-year note sale
January 7, 2014 / 3:25 PM / 4 years ago

TREASURIES-U.S. bond prices steady before 3-year note sale

* U.S. to sell $30 billion new three-year notes
    * Fed's Rosengren sees gradual reduction of stimulus
    * U.S. trade gap shrank to smallest in four years in
November
    * U.S. Senate confirms Yellen as Fed chair, as expected

    By Richard Leong
    NEW YORK, Jan 7 (Reuters) - U.S. Treasuries prices held
steady on Tuesday with benchmark yields hovering near two-week
lows ahead of a $30 billion auction of three-year notes, part of
this week's $64 billion in coupon-bearing government debt.
    The bond market has stabilized early in the new year after a
dismal 2013 as evidence of cooling in car sales and the services
sector raised bets the Federal Reserve would pare its massive
bond purchase program very slowly in the coming months.
    The U.S. central bank said last month it will buy $75
billion in Treasuries and mortgage-backed securities in January,
$10 billion less a month than what it had been purchasing in its
effort to hold down long-term interest rates and stimulate the
economy.
    Fears about the Fed tapering its bond purchases resulted in
the Treasuries market in 2013 recording its third biggest annual
loss in 40 years. Now some investors are reconsidering seeing
the Fed move as a shift in its accommodative policy tilt and
reckon the current yield levels are an over-reaction to the
tapering.
    "I'm paying attention to the tapering. They haven't stopped
that. They are still trying to buy bonds to help increase
economic growth," said James Barnes, fixed income portfolio
manager at National Penn Investors Trust Co. in Wyomissing,
Pennsylvania.
    On Tuesday, Boston Federal Reserve President Eric Rosengren 
said the Fed will reduce its third round of large scale bond
purchases "only gradually" because the economy, while improving,
remains fragile as price growth remains too low. 
    Rosengren, who is not a voter on the policy-setting Federal
Open Market Committee this year, was speaking at an event to a
business and industry group in Hartford, Connecticut.     
    The Fed will buy $2.25 billion to $3.00 billion in debt due
in February 2021 to November 2023 at 11 a.m. (1600 GMT), which
is part of its planned $40 billion purchases in Treasuries in
January for its QE3 program. 
    In other Fed developments, the U.S. Senate as expected
confirmed late Monday Janet Yellen to replace Ben Bernanke as
chair of the Federal Reserve, making her the first woman to lead
central bank in its 100-year history. 
    For Wall Street, her leadership should mean the Fed's
stimulative policies will continue in a bid to bolster an uneven
recovery saddled with relatively high unemployment and low
inflation.
    Still, the economy has proven resilient. The Commerce
Department said on Tuesday the U.S. trade deficit shrank to a
four-year low in November on record exports. 
    Benchmark 10-year Treasuries notes were little
changed in price at 98-6/32 to yield 2.960 percent.
    On moderate volume, the 10-year yield fell to a two-week low
of 2.943 percent earlier Tuesday. It rose to a near 2-1/2-year
high of 3.041 percent last Thursday, according to Reuters data.
 
    HEAVY SUPPLY WEEK
    Investors, while awaiting the Fed's minutes on its December
policy meeting on Wednesday and the government's payrolls report
on Friday, prepared to make room for this week's heavy supply of
public and private bonds.
    The Treasury Department will hold a $30 billion auction of 
three-year debt at 1 p.m. (1800 GMT). It will
sell $21 billion in 10-year notes on Wednesday 
and $13 billion in 30-year bonds on Thursday.  
    In "when-issued" activity, traders expected the upcoming
three-year issue to sell at a yield of 0.8060 percent, which
would be the highest yield at a three-year auction since
September. 
    Investors and analysts forecast solid demand for the
three-year notes given the relatively wide yield gap between
two-year and three-year Treasuries, but they were less certain
about the bidding for longer maturities before Friday's payroll
data.
    "It's an opportunity to pick up some yield," National Penn's
Barnes said.
    The three-year yield was 36 basis points above the two-year
yield early Tuesday, compared with 31 basis points a month ago
and 12 basis points a year ago .
    Competing for investors' cash will be an expected flood of
investment-grade corporate bonds. Wall Street underwriters
forecast that companies plan to sell $90 billion to $100 billion
in high-grade debt in January, according to IFR, a unit of
Thomson Reuters.

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