By Karen Brettell
NEW YORK, May 22 (Reuters) – U.S. Treasuries prices fell on
Tuesday as investors took profits after recent gains and
continuing uncertainty in Europe kept many fund managers on the
sidelines.
Traders also prepared for supply of $99 billion in new
two-year, five-year and seven-year notes this week. The Treasury
is expected to see relatively strong demand for its $35 billion
sale of new two-year notes on Tuesday.
Treasuries yields have fallen to levels that are near their
lowest in at least 60 years as fears that Europe will see new
funding stresses added demand for safe haven U.S. debt.
With few new headlines, however, many investors are undoing
trades to benefit from recent gains and are waiting on
information on how leaders in the region will address the
crisis.
“Nothing has happened in the last couple of days. The market
was very high, it was well bid, and all you’re seeing now is
just some people taking profits out of Treasuries and killing
their shorts in equities,” said Charles Comiskey, head of
Treasuries trading at Bank of Nova Scotia in New York.
Traders will next focus on an informal summit of EU leaders
in Brussels on Wednesday, where France’s Francois Hollande will
push a proposal for mutualising European debt.
Germany is likely to oppose any early move, saying that more
progress is needed on coordinating fiscal policies across the
euro zone.
A key U.S. employment report scheduled for next week and
Greek elections next month will help determine further market
moves and whether yields retest recent lows.
“There is going to be a lot of noise in the next few weeks
for payrolls and the Greek elections,” said Justin Lederer, an
interest rate strategist at Cantor Fitzgerald in New York. “They
could give us an idea of what the Fed is going to do. We believe
they will announce further easing in June.”
Investors have been dramatically reducing bets that the
Treasury yield curve will steepen as the Federal Reserve
concludes its Operation Twist program next month.
Further weakening in U.S. economic data would make it more
likely that the Fed will announce further bond purchases.
Two-year notes yields rose slightly ahead of
Tuesday’s auction. The yields increased to 0.31 percent, from
0.29 percent late on Monday.
The Federal Reserve also sold $8.63 billion of debt due next
year on Tuesday as part of its Operation Twist program, out of
$75.08 billion that was submitted for sale.
This program involves buying longer-term debt and funding
the purchases with sales of short-dated debt in a bid to lower
long-term borrowing costs.
Benchmark 10-year notes were last down 15/32 in
price to yield 1.80 percent, up from 1.74 percent on Monday.
They are now 13 basis points higher than yields of 1.67 percent
reached last September that were the lowest in at least 60
years.
