Treasuries slip

Nagging worries the Federal Reserve will keep short-term interest rates near zero for too long as inflation and the economy accelerate sent US Treasury prices lower on Monday for a sixth straight session. Treasury debt yields, now at levels reached last spring, have persuaded many that a three-decade long bull market for bonds is over.
Greater global demand and bad crop weather have caused a surge in food and oil prices. The Reuters-Jefferies CRB index, a widely watched gauge on commodity prices, hit its highest level since October 2008 last week.
Fed officials, including Chairman Ben Bernanke, have said the underlying domestic inflation trend has remained tame after volatile food and oil costs are factored out. In contrast, China and other countries have raised bank reserve requirements and taken other steps to cool inflation and capital inflows. Mortgage-related selling has also been "a big factor" in the sell-off, said Thomas di Galoma, head of fixed-income rates trading at Guggenheim Securities in New York.
When interest rates rise, mortgage servicers try to hedge the undesired lengthening of their portfolio durations by selling Treasuries. Yields at their highest level since last spring brought in some bargain hunters and short-covering.
These mildly encouraging moves ahead of this week's $72 billion quarterly refunding dissipated some of the gloom hanging over the bond market. Benchmark 10-year yields steadied near 3.64 percent, up 34 basis points in three weeks, but up a more tempered 24 basis points over the last month. In cash trading, the price on two-year Treasuries fell 2/32 to yield 0.79 percent, up 4 basis points from late Friday, holding chart support at 0.80 percent.
Benchmark 10-year notes slipped 3/32 in price, its yield rising to 3.65 percent, up from 3.64 percent at Friday's close and near its highest levels since May.
The yield curve flattened slightly though it remains near its steepest level since February 2010. A steep yield curve is typically read as predicting a stronger economy and stock market, two factors that make the bond market suffer by comparison. The 30-year bond rose 9/32, its yield easing to 4.71 percent from 4.73 percent late Friday.