US Treasury prices rose on Tuesday in choppy trading as oil prices resumed their decline and ahead of a Treasury sale of $24 billion of three-year notes, increasing appetite for safe-haven US government debt. Oil prices continued to fall after reaching 12-year lows on Monday, keeping investors away from risky assets and stoking concerns that a slowdown in China could damage the global economy.
"Crude is essentially flat for the first time this year with gasoline up almost 1.5 percent, but yesterday's market started with a similar tone and crude ended down 5 percent," said Aaron Kohli, interest rate strategist at BMO Capital Markets in New York. Short-term interest rates have been increasing at a faster rate than long-term rates in a bear-flattening move.
"The Treasury curve is bear-flattening with the two-year leading the selloff as the market comes to the realisation that too little is priced into the front-end and the Fed path," said Kohli. Traders expect moves in the government debt market to be driven by corporate and government supply this week. The Treasury's $24 billion sale of three-year notes is expected to contribute to the flattening of the yield curve. Traders also expect there to be strong investor demand for the notes.
"We expect the three-year auction to go well, if for no other reason than this sector has a very long history of strong demand and it hasn't tailed since September 2014," wrote Ian Lyngen in a morning note. Traders will also be listening closely to Federal Reserve officials scheduled to speak throughout the week. While they aren't expected to break away from the message that the US central bank is "data dependent," investors are listening for clues about the impact of global events on rate increases expected this year.
The two-year note was last flat in price to yield 0.935 percent, up from 0.928 percent late on Monday. Benchmark 10-year notes were last up 6/32 in price to yield 2.136 percent, down from 2.158 percent on Monday. The 30-year bond was last up 26/32 in price to yield 2.914 percent, down from 2.957 percent on Monday.
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