Treasuries extend losses

US Treasuries extended their recent losses on Tuesday after the Federal Reserve showed no signs of curtailing its stimulus measures, raising the prospect of accelerating economic growth as well as inflation. Some analysts, however, looked to Federal Reserve bond purchases and a lack of Treasury supply in coming weeks as possible factors to stem a selloff that has caused yields to jump to new ranges and trade at the highest levels in seven months.
The Fed, after its regular policy meeting on Tuesday, said the economic recovery was still too slow to bring down unemployment, reaffirming its commitment to purchase $600 billion in bonds to stimulate growth and create jobs. "I think people are digesting the dovishness of the statement and penalising the Fed," said Dominic Konstam, interest rate strategist at Deutsche Bank in New York.
The benchmark 10-year Treasury note was last down 1-18/32 in price, its yield rising to 3.46 percent, from 3.28 percent late on Monday. The notes earlier crossed the 3.375 percent level that marked a 61.8 percent retracement of this year's rally. Ten-year Treasuries are on track for their worst day in a week and worst month since April 2004.
The 30-year bond slid 1-23/32 in price to yield 4.52 percent, its highest level since April. US short-term interest rate futures traders kept expectations the Fed will wait to hike rates until late 2011. Bonds earlier traded lower in price when stronger-than-expected US retail sales data added to expectations that the economy would grow at a faster pace next year.
Heavy selling of Treasuries has pushed bond yields through new technical support levels, which may signal further weakness. Yields for the ten-year note could next rise to the 3.6 percent to 3.7 percent area, which would be the 78.6 percent retracement of the 2010 rally, technical analysts at Credit Suisse said.
The notes would likely find strong support at these levels, however, and buyers would likely step in, which could send yields back lower, they said in a report. Analysts are looking for signs of what could stem the selling that has caused bonds to give up two-third of their year's gains in only a matter of weeks. Meanwhile the front end of the yield curve steepened dramatically, with the gap between yields on two- and 10-year notes expanding to 282 basis points - its widest since April - from 265 basis points late on Monday.