Treasuries slip

The commitment to a stimulative monetary policy reiterated by Federal Reserve Chairman Ben Bernanke favoured riskier assets over safe-haven US debt, sending US bond prices lower on Wednesday. The fear of imminent US government spending cuts and uncertainty about Italian politics which sent US bond yields to one-month lows earlier this week abated as investors favoured stocks and took some profits in US Treasuries.
"The basic story today was a return to risk on with a sharp increase in equities pulling the bid from Treasuries," said John Canavan, market analyst at Stone & McCarthy Research Associates in Princeton, New Jersey. Fed Chairman Bernanke's semi-annual testimony to Congress, delivered on Tuesday and repeated on Wednesday with each day including a question and answer period, inspired the confidence in riskier assets.
Not only did Bernanke emphasise the benefits of the Fed's bond-buying program relative to its cost, he also noted the possibility that eventual sales of the bonds could be avoided, suggesting the securities could be held a little longer or allowed to run off, analysts said. The cooling of the safe-haven bid that boosted Treasury prices and sent yields to one-month lows early in the week appeared to temper investors' interest in the US Treasury's third coupon sale of the week.
An auction of seven-year Treasury notes drew demand that was slightly below average, said Justin Lederer, Treasury strategist at Cantor, Fitzgerald in New York. Still, a desire for safety could revive the bid for US Treasury debt if automatic US government spending cuts set for Friday are not avoided or quickly rescinded. Such cuts would intensify the impact of the fiscal restraint that resulted from so-called "fiscal cliff" negotiations, talks that allowed a 2 percent cut in the payroll tax to expire.
Benchmark 10-year Treasuries were last down 5/32 in price, their yields at 1.90 percent compared with 1.89 percent late on Tuesday. Thirty-year Treasuries bonds slipped 13/32 in price, their yields rising to 3.10 percent from 3.08 percent late on Tuesday. Data showing a jump in durable goods orders, excluding aircraft, was positive for riskier assets like stocks and negative for Treasuries, though the report elicited little overt reaction. The Fed bought $5.02 billion in debt due 2017 on Wednesday as part of the central bank's long-standing effort to encourage economic growth with enough velocity to lower unemployment.