US Treasury debt prices were narrowly mixed on Tuesday as the absence of economic data left investors seeking fresh direction after weeks of heavy selling.
Comments from two top Federal Reserve officials were just balanced enough to offer few such clues to traders, who would have to wait until Friday's employment report for a deeper sense of current economic conditions.
Benchmark yields, which move in the opposite direction to prices, have spiked around half a percentage point since mid-January as strong economic data reinforced expectations for further interest rate hikes from the Federal Reserve.
Now bonds appeared to be settling into a new, higher range in yields. Ten-year notes were flat and yielding 4.87 percent. Two-year notes were up 1/32 and yielding 4.84 percent, compared with 4.85 percent Monday.
"We're anxious fence-sitters," said David Ader, government bond strategist at RBS Greenwich. "Yields are back to where we like them - and we'll like them more if we see more buyers and improved price action."
This seemed to be the stance of many investors, since J.P. Morgan's latest client survey showed a huge 14 percentage-point increase in the number of outstanding neutral positions in the market.
That was partly due to position squaring ahead of Friday's jobs report, which Wall Street expects to reveal the net creation of 190,000 positions in March after a gain of 243,000 in February.
Comments from two regional Fed presidents on Tuesday appeared friendly to Treasuries on the surface, but the market failed to get much of a lift from them.
"Both presented a fairly sanguine outlook for inflation," said Michael Feroli, US economist at J.P. Morgan.
Dallas Fed President Richard Fisher argued that global measures of economic slack, not just domestic ones, should be used in any analysis of potential inflation.
Analysts said that seemed to suggest he favoured a pause in interest rate increases, although many suspected Fisher was in the minority view at the US central bank.
Yet bonds failed to gain much traction, with five-year notes up just 2/32 and yielding 4.82 percent.
Fisher's counterpart at the Richmond Fed, Jeffrey Lacker, argued that he was not seeing any sign of rising inflation in the most recent data. But in the question and answer session he also noted that long-term inflation expectations, while contained, were on the higher side of his desired range.
That helped push the 30-year bond 7/32 lower for a yield of 4.91 percent, having hit a 13-month high of 4.95 percent on Monday. Hurting Treasuries at the margin were comments from a senior Chinese official who said China should trim its holdings of US debt. Asian central banks own over a quarter of marketable Treasuries, with China the second biggest holder after Japan.
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