BOND REPORT: Treasury Prices Swing Higher Ahead Of Debt Supply

By Ben Eisen, MarketWatch

NEW YORK (MarketWatch) -- Treasury prices swung slightly higher Monday, but traded in a narrow range, as the government debt market prepares for a slew of debt sales.

The 10-year Treasury note (10_YEAR) yield, which falls as prices rise, was down a basis point at 2.782%. The 30-year bond (30_YEAR) yield fell slightly to 3.722%, and the 5-year note (5_YEAR) yield fell 1.5 basis points to 1.626%.

During a quiet week for the bond market, investors will look to a coming spurt of auction supply. The Treasury Department will sell $30 billion of 3-year notes (3_YEAR) , $21 billion of 10-year notes, and $13 billion of 30-year bonds.

Other high profile debt offerings this week include a sale of roughly $3 billion in municipal bonds from junk-rated Puerto Rico, which is circulating price talk on debt that it is selling to buy time to shore up its struggling finances. The commonwealth's $70 billion in bonds, which dropped sharply in price last year, is held in a wide range of municipal bond funds because of its exemption from federal, state, and local taxes ((Read more about one fund group that bet big on Puerto Rico http://www.marketwatch.com/story/puerto-ricos-travails-hit-muni-bond-firm-that-bet-big-2014-03-04.)).

Corporate issuers in the market Monday include Verizon Communications Inc. (VZ) , which is raising money to refinance debt at lower interest rates, and Petroleo Brasileiro SA , a large Brazilian issuer.

"Obviously it's a big chunk of supply right across the curve in corporates, Treasurys and munis," said Thomas Roth, director of government trading at Mitsubishi UFJ Securities U.S.A. Inc.

Despite the new supply, Treasury prices pushed slightly higher Monday as stocks fell a bit amid renewed concerns about escalating conflicts between Russia and Ukraine in the Crimean region.

"It's kind of the saber rattling from Ukraine putting pressure on stocks and bid in Treasurys. We really haven't moved too much from Friday's close," Roth said.

Interest rates are down since the start of the year as they took their queue from soft economic data which most believe has been obscured by particularly cold weather across much of the country. However, a jobs report that beat economist expectations even amid signs of weather-related slowdown in the labor force, sent yields higher on Friday.

This week will be light on economic data. A report on retail sales is due out on Thursday, and producer price index arrives Friday ().

Federal Reserve Bank of Philadelphia President Charles Plosser spoke Monday, suggesting that a pickup in the economy may force the Federal Reserve to wind down its bond-buying stimulus program faster than its current pace. The central bank is currently withdrawing $10 billion from its asset purchase program at each meeting.

A report by The Wall Street Journal's Jon Hilsenrath on Monday suggests that the Fed is also thinking about the next leg of its normalization of monetary policy. The central bank's current thinking involves draining liquidity from the system by paying interest on excess reserves to the banking system, as well as using "reverse repos" to pay interest to those outside of the banking system in return for lending the Fed cash.

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