US Treasuries prices fell on Monday as traders took profits on a recent rally that last week pushed yields to historic lows. Selling was limited, however, as a myriad of uncertainties ahead for the global economy and monetary policy underpinned some reluctance to sell lower-risk Treasuries. "We're consolidating a little of last week's gains," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.
Investors saw some signs of hope for containing Europe's debt crisis in talk that Germany seems to be willing to lend support to Spanish banks. German Chancellor Angela Merkel proposed greater fiscal union for Europe, including a central authority to manage euro-Asia finances, and major new powers for the European Commission, European Parliament and European Court of Justice. Still, investors remain wary of dumping safe-haven Treasuries, worried over the seething Spanish banking crisis and a June 17 Greek election that may lead to Athens leaving the eurozone.
"Even though there is some optimism that Germany will go for a euro-bond type of deal, it is still going to be a long process and some austerity measures are going to have to be taken, so trading is still very cautious," Rupert said. Finance chiefs of the Group of Seven leading industrialised powers will hold emergency talks on the euro zone debt crisis o n Tu esday in a sign of heightened global alarm about strains in the 17-nation European currency area.
Disappointing US jobs growth figures on Friday and weak Chinese manufacturing data reinforced the trend to lower US Treasury yields last week, a trend that looked only mildly ameliorated on Monday since investors have plenty of reason to maintain a wait-and-see stance, at best.
Benchmark 10-year Treasury yields on Friday touched an all-time low of 1.44 percent. Traders on M onday took advantage of those low yields to book some profits, with 10-year notes trading 19/32 lower in price to yield 1.52 percent, up from 1.46 percent late Friday.
One question for traders is whether policy meetings by the European Central Bank and the Bank of England this week will produce any sign that more monetary easing is likely - given weaker-than-expected economic data. Federal Reserve Chairman Ben Bernanke addresses Congress on T hursday and a growing number of economists think the Fed's policy-setting committee will act at its June 19-20 meeting.
A note from Goldman Sachs economist Jan Hatzius said the hit to the US economy "could shrink or grow, but the risks are skewed to a worse outcome than our current baseline." In addition, inflation is abating, partly because of the drop in commodity prices, including a $25 per barrel plunge in oil prices. He also noted that labour cost pressures remain absent, with average hourly earnings "still decelerating."
US Treasury strategists said Monday's profit-taking could also have been constrained by the potential for more action from the Fed. Hatzius said Goldman's confidence that the policy-setting Federal Open Market Committee will ease policy once more at the June 19-20 meeting has grown, noting that with Fed officials "far short of their dual mandate of maximum employment and 2 percent inflation, financial conditions should be accommodative and GDP growth should be well above trend to re-employ displaced workers.
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