US Treasury prices close mixed

US Treasury prices were mixed on Tuesday as expectations for only a small Federal Reserve interest rate cut next week undermined shorter-maturity debt, while a falling stock market rejuvenated longer-dated bonds.
US stock prices slipped on concerns that record oil prices approaching $120 per barrel will further slow the economy, and investors scurried to the safe haven of longer-dated government debt. Shorter-dated bond prices eased though as many investors scaled back expectations for a Federal Reserve interest rate cut at its next policy meeting on April 309.
Fed funds futures imply an 80 percent chance the Fed will cut the recommended overnight lending rate between banks by 25 basis points on April 30, while just over a week ago the futures contract prices implied about a 50 percent chance of a 50 basis point cut. "The market is clearly discounting only a 25 basis point cut next week," said Mary Ann Hurley, vice president of fixed-income trading for D.A. Davidson & Co in Seattle, adding "stocks are helping the longer end of the bond market and not really the short end.
Benchmark 10-year US Treasury notes traded 6/32 higher in price for a yield of 3.71 percent from 3.73 percent late on Monday, while 2-year Treasury notes traded 2/32 lower in price for a yield of 2.21 percent from 2.17 percent.
"The stock market is up against a little bit of a ceiling here. Bonds are reacting accordingly," said Carley Garner, senior analyst at Alaron Trading in Las Vegas. The longer-end of the Treasury curve pared some gains on Tuesday afternoon after relatively tepid demand in an auction of $8 billion of five-year Treasury Inflation Protected Securities.
Further debt supply this week could continue to buffet the market, with $30 billion of 2-year notes due on Wednesday and $19 billion of 5-year notes due on Thursday. The 2-year note sale is a record large size for a single auction from the Treasury, and analysts have expressed some concern that the flood of new supply could cut into bond prices.
"They certainly have the potential to be a market mover," Hurley said. Adding to the downward price pressure on the short end on Tuesday was an unexpectedly mild slide in March home sales, which added to doubts that the Fed would continue cutting interest rates aggressively. The pace of existing home sales in the US fell two percent in March to an annual rate of 4.93 million units, the National Association of Realtors said.
Five year Treasury notes traded 1/32 lower in price for a yield of 2.95 percent from 2.94 percent late on Monday, while the 30-year bond traded 20/32 higher in price for a yield of 4.46 percent from 4.49 percent.