Treasuries rise

US Treasuries prices rose on Tuesday as weaker stocks and indications the Federal Reserve is mulling further economic stimulus underpinned a bid for government debt. But overall, the price action remained relatively neutral, with data hinting at a pickup in US growth in the fourth quarter somewhat offsetting the bullishness for bonds of ongoing worries over the eventual global impact of the eurozone debt crisis.
The Fed said in the minutes from its November 1-2 policy meeting that most central bank officials supported giving the public more details about the likely path of monetary policy, and a few believed the outlook for modest growth might warrant further policy accommodation.
"The largely as-expected details were skewed dovishly as the Federal Open Market Committee was clearly contemplating additional accommodation via the communication change and forward commitments," said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut. "The implications were marginally bullish for the Treasury market and yields drifted lower in the wake of the release," Lyngen said.
Benchmark 10-year Treasury notes traded 5/32 higher in price with their yields dipping to 1.93 percent from 1.95 percent late Monday. Thirty-year bonds rose 30/32 in price, their yields dipping to 2.89 percent, marking the lowest since October 6 and down from 2.95 percent late Monday.
Overall, the continued desire for the lower-risk protection of US government debt could be seen in solid demand in an auction of $35 billion of five-year notes, which brought a record low yield for the securities at auction. "Continued eurozone uncertainty ensured significant flight-to-quality flows supporting the five-year auction despite record low yield levels," said George Goncalves, head of US interest rates strategy at Nomura Securities International in New York.
The Treasury auctions a total of $99 billion of two-year, five-year and seven-year Treasury notes this week. Monday's sale of $35 billion of two-year notes met with solid demand. While the shorter- to medium-dated debt has fared well in the sales, Wednesday's auction of $29 billion of seven-year notes may face more of a struggle.
Tuesday's auction was conducted between purchases by the Federal Reserve of $4.95 billion in the six- to eight-year sector at 11 am (1600 GMT) and purchases of $2.54 billion in the 25- to 30-year sector at 3 pm (2000 GMT). The purchases were part of the Fed's latest stimulus program, dubbed "Operation Twist," which extends the maturity of the central bank's Treasuries holdings in a bid to lower mortgage rates and other long-term borrowing costs.
The Commerce Department on Tuesday said the US economy grew 2 percent in the third quarter - more slowly than previously estimated - but economists said weak inventory accumulation amid sturdy consumer spending argued for output to pick up in the current quarter.
"Real final sales were up 3.6 percent, so the engine of growth continued to hum and weakness in inventories should set up a rebound that will boost overall growth to about 3 percent in the fourth quarter," said Thomas Simons, money market economist at Jefferies & Co in New York.