US Treasury prices slip

Profit-taking trimmed prices of US Treasuries on Thursday after the Federal Reserves plan to buy longer dated government securities fuelled a huge rally in the previous session. The Fed said on Wednesday it would buy up to $300 billion of longer-dated Treasuries over the next six months in an attempt to fuel economic activity.
The news sent benchmark Treasury yields down nearly 50 basis points in the biggest single-day drop in yields since October 20, 1987, the day after the 1987 stock market crash.
"After yesterdays gains and some additional gains early this morning, we saw a small, steady drip of profit-taking," said John Canavan, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey. The benchmark 10-year Treasury notes fell 16/32 in price, its yield rising to 2.60 percent from 2.56 percent on Wednesday.
Two-year notes slipped 2/32 in price, their yields rising to 0.86 percent from 0.83 percent on Wednesday. Losses in the 30-year Treasury bond were sharper than those in shorter maturities. "Given the statement from the New York Feds open market desk yesterday that purchases would be concentrated in the two- to 10-year area, its no surprise that the 30-year bond is underperforming," Canavan said.
Thirty-year bonds fell one-and-a-half points in price, their yields rising to 3.62 percent from 3.54 percent on Wednesday. The yield curve, or the difference between two- and 10-year yields, stood at 173 basis points on Thursday. After the dramatic shift in the Treasury markets landscape effected by the Fed announcement, the market is finding a new equilibrium, said IDEAglobal bond strategist Josh Stiles in New York.
"Some large international holders of Treasuries might gradually use the Feds buying to lighten up on heavy holdings if they start to see the Fed purchases as weakening the dollar and creating a longer-term inflation risk," he said. "After the market has made this dramatic adjustment in prices, that could temper the bullishness about how much farther this market can go," Stiles said.
Prices were also getting trimmed ahead of three big Treasury auctions next week, traders said. The Treasury will sell $40 billion two-year notes, $34 billion in five-year notes, and $24 billion in seven-year notes.
US government data showing a jump in the four-week average of claims for jobless benefits gave bond prices an early, short-lived, boost earlier in the day. News that factory activity in the US Mid-Atlantic region shrank less severely in March than in February seemed to have little impact on bond prices.
The Philadelphia Fed said on Thursday that its business activity index was minus 35.0 in March compared with minus 41.3 in February. A reading below zero indicates contraction in the regions manufacturing sector. In late trade, five-year Treasury notes were down 9/32 in price, their yields rising to 1.64 percent from 1.58 percent late on Wednesday.