LONDON: US Treasuries were stable in Europe on Wednesday, as month-end buying offset a slight pick-up in risk appetite on hopes that the US Federal Reserve could resume monetary stimulus.
The minutes from the Fed's Aug. 9 policy meeting showed some officials were calling for bold steps to help the country's struggling economy, fanning expectations that more easing measures will be forthcoming after policymakers meet on Sept. 20-21 meeting.
"The market is a little bit in a risk-on mode at the moment, but the front end of the curve in Treasuries seems to be OK, primarily due to month-end buying," one trader said.
T-note futures were last 1/64 down at 130-12/32, while 10-year yields were up 1.2 basis points at 2.188 percent. Two-year yields were flat at 0.195 percent and the 30-year yields were up 2.9 bps at 3.553 percent.
Some investors have been switching to equities out of bonds on bets for more stimulus over the last few days while others remain cautious, preferring safe-haven assets owing to repeated bouts of weak economic data and with no quick fix in sight for the euro zone debt crisis.
This division means that the ADP employment data and the Chicago PMI index are likely to prompt a volatile reaction in Treasuries markets, but with the 10-year yield finding stiff resistance close to 2 percent the net change in yields may be limited.
"If the Fed is going to be perceived as doing everything in its ability to foster growth that's going to be equity-friendly," said Craig Collins, trader at Bank of Montreal. "Bonds have benefited from a flight to quality bid."
He said, though, that Treasuries could get support from the data later in the session if it comes out weaker than expected and possibly the longer end could outperform.
The first trader said the market was already positioned for weak figures on Wednesday.
"Everyone is expecting weak data, it's just how bad would it be," he said. "Right now, the 2 percent (level in 10 year yields) seems to be a big stumbling block for the market."
Copyright Reuters, 2011
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