MW: Treasurys tugged by Fed officials and auctions
Auction of bills near 0% possible during session
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) - Long-term Treasury-bond prices rose slightly on Monday as comments from Federal Reserve officials suggesting that the central bank may need to continue its asset-buying programs and keep interest rates low for a very long time eased concerns that rates would rise.
Ten-year-note yields (UST10Y 3.36, +0.03, +0.78%) fell 1 basis point to 3.39%. A basis point is 0.01 percentage point. Bond yields move inversely to prices.
Yields on the current security (UST2YR 0.72, +0.03, +3.90%) rose 1 basis point to 0.74%, after last week touching the lowest this year.
Federal Reserve Bank of St. Louis President James Bullard said Sunday that the U.S. central bank should continue buying mortgage-backed securities and other assets longer than currently planned, which is through March. See more on Bullard's remarks.
Also drawing bond traders' attention was a Financial Times story that said Chicago Fed President Charles Evans believes unemployment will increase even from current lofty levels and the Fed's target overnight borrowing rate between banks may be kept near zero until the middle of 2010 and perhaps 2011.
"We've heard nothing but dovish comments in recent weeks, and in such a distinct shift from a degree of optimism to a degree of caution," said strategists at CRT Capital Group. "We also sensed some hints that are gaining a little bit more credence with Bullard over the weekend saying he'd like to keep the Fed's asset-buying program open beyond the first quarter."
Evans' comments were also "relatively Treasury bullish," they wrote in a note.
Shorter-term debt was under more pressure before the government auctions $44 billion in 2-year notes, matching the record amount sold last month. Bids are due at 1 p.m. Eastern time.
"What should make today's 2-year note another great one today is 1) the huge pile of cash known to be in investor hands, 2) the stingy yields in T-bills, 3) the desire to be 'current' here near year-end and as volumes and liquidity erode, and 4) the recent comments from the Fed that short rates should stay low and supportive through 2010 and perhaps beyond," said bond strategists at RBS Securities.
Traders will also pay more attention than usual to T-bill auctions this morning. Desire for liquidity as the end of the year approaches pushed rates on the short-term securities to zero last week -- a rarity last seen at the height of the credit crisis.
The current 3-month bill rate (UST3MO 0.01, +0.00, +66.67%) is trading around 0.2%. In early December 2008, the government sold $27 billion of the bills at a rate of 0.005% -- a yield of less than a basis point.
The current 6-month bill rate (UST6MO 0.13, 0.00, -3.05%) is about 0.13%.
"With U.S. T-bill yields hovering near zero, today's weekly bill auctions may attract more general market attention than usual," said analysts at Brown Brothers Harriman. "The demand for short-term paper is great. Many medium-term investors want to stay fairly liquid."
The Treasury Department will sell $30 billion in 3-month bills and $31 billion in 6-month bills, with bids due at 11:30 a.m. Eastern Time.
An economic report at 10 a.m. is expected to show existing-home sales picked up in October. See preview of the week's economic data.
The government will also sell record amounts of 5-year (UST5YR 2.17, +0.03, +1.30%) and 7-year notes in a week shortened by the Thanksgiving holiday.
