By Min Zeng
Treasury bonds were weighted down Monday as the U.S. government
kicked off this week's $108 billion new government debt
offerings.
In late afternoon trading, the benchmark 10-year note was 6/32
lower, yielding 2.493%, according to Tradeweb. The 30-year bond was
12/32 lower, yielding 3.264%.
Bond yields rise as their prices fall.
"The weekend passing without a major escalation in any of the
geopolitical fronts globally has allowed for the Treasury market to
start to focus on supply," said Anthony Cronin, a Treasury bond
trader at Société Générale SA.
A sale of $29 billion in two-year notes at 1 p.m. was the first
leg of this week's new issuances. The new two-year notes were sold
at a yield of 0.544%, the highest since 2011.
The sale drew mixed results. Demand from foreign investors
perked up--the indirect bid was 27%, the highest since March. But
the direct bid, a group that includes bidding from U.S. investment
firms, was 14.3%, the lowest since June 2013. Analysts said
investors' appetites were tempered ahead of a two-day monetary
policy meeting from the Federal Reserve that starts Tuesday.
A sale of $35 billion in five-year notes is scheduled for
Tuesday, followed by $29 billion in seven-year notes on Wednesday
when a sale of $15 billion two-year floating-rate Treasury notes is
also due.
Bond prices had strengthened earlier. An unexpected 1.1% decline
in pending home sales raised concerns over how robustly the U.S.
economy would grow this year, which boosted the allure of
safe-haven bonds.
The buying sent the 30-year bond's yield to as low as 3.228%. It
marked the lowest level since June 2013.
The 30-year bond offers the highest yield in the U.S. government
bond market. It also has higher yields when compared with
counterparts in Germany and Japan, luring buyers seeking relative
value.
The 10-year note's yield is near this year's low of 2.4% set
during the May 29 session. The yield was 3% at the start of
January.
An uneven pace of the global economy and geopolitical tensions
in Ukraine and the Middle East have boosted demand for U.S.
government bonds this year, sending yields lower.
China, the biggest foreign owner of U.S. government debt, has
bought Treasurys this year in a bid to lower the value of the
nation's currency to boost exports.
The Federal Open Market Committee is scheduled to release a
statement Wednesday afternoon regarding the latest assessments on
the economy and inflation, as well as its interest-rate policy.
Economists widely expect the Fed to announce another $10 billion
reduction in its monthly bond buying, shrinking the purchases to
$25 billion a month. The Fed has been cutting monthly buying since
January. Policy makers have said the buying program, which has
played a big role in keeping bond yields near historic lows to
stimulate the economy, will likely stop before the end of
October.
A particular focus for bond investors is when the Fed is going
to start raising its official interest rates.
Economists and investors expect the Fed won't raise interest
rates until the middle of 2015. The Fed has held its key policy
rate near zero since December 2008.
Analysts caution that the central bank could bring forward the
timing of a rate increase if the U.S. economy accelerates or
inflation concerns pick up speed.
So far, the picture of the U.S. economy remains uncertain.
Employment has gathered speed. Economists expect Friday's release
to show the U.S. economy added 230,000 nonfarm jobs this month,
following 288,000 new hiring in June.
But some indicators of the housing sector continue to signal a
tepid pace of growth. Wage pressures--an inflation gauge closely
tracked by Fed officials, especially Chairwoman Janet Yellen--have
remained contained.
Write to Min Zeng at min.zeng@wsj.com
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