US Treasury debt prices fell on Wednesday after strong data and minutes from the Federal Reserve underpinned expectations for improved economic growth. Minutes from the Fed's January meeting suggest a reasonably upbeat outlook for the economy, and several policy makers want to soon begin withdrawing the monetary stimulus that has served as a pillar of support for US debt markets.
Rates have remained lower in part due to the Fed's active role. The Fed wants to begin selling securities relatively soon as a way to cut back its massive supply of cash to the financial system. "I think that bonds don't like the fact that a number of Fed members agreed that they were going to have to be pulling the stimulus at some point," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle.
Surprising strength in housing starts, which reached a six-month high in January, and industrial production, also drove the retreat from safe-haven government debt. The 30-year Treasury bond was down more than a point, losing 1-4/32 for a yield of 4.70 percent, up from Tuesday's closing yield of 4.64 percent.
The 10-year Treasury note was down 20/32 to yield 3.73 percent, up from Tuesday's closing yield of 3.66 percent. At the height of the 2008-09 financial crisis, the Fed put in place a raft of emergency programs, including one to buy $1.25 trillion worth of securities backed by mortgages guaranteed by Fannie Mae and Freddie Mac. In the process, its balance sheet more than doubled to over $2 trillion. Debt markets elsewhere improved, reflecting reduced worry about Greece's financial problems spreading to other troubled European nations.
"Clearly the Greece thing is not resolved, who knows when it will be, but it's not enough, today at least, to outweigh the economic data," said Jay Mueller, senior portfolio manager at Wells Capital Management in Milwaukee, Wisconsin. Spain drew strong demand for a government bond issue and Portugal's borrowing costs fell, both signs that fears of sovereign risk contagion in the euro zone have eased, at least temporarily.
Greece's ongoing fiscal woes have supported Treasuries in recent weeks, despite the burgeoning US budget deficit. Separately, the Federal Reserve has been reinvesting proceeds of maturing Treasuries by acquiring new issues, the US central bank said on Wednesday.
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