US Treasuries ended little changed on Friday after yields earlier hit their lowest in nearly three months as investors bet that the Federal Reserve is unlikely to pare back its bond purchase program anytime soon and focused on the release of delayed government data next week.
Lawmakers in Washington agreed late on Wednesday to lift the US debt ceiling after a bruising battle that caused many investors to flee from some Treasuries. Some of those investors have now returned though dislocations in short-term rate markets were still evident on Friday.
With the threat of a US default now in the rear-view mirror, market focus has turned back to when the Fed is likely to reduce its $85 billion-a-month bond buying program. The more than two-week government shutdown is seen as having slowed economic growth, while the lack of data muddies insight into economic strength and makes it less likely that the Fed will pare purchases anytime soon.
"Given the shutdown and the fact that the problem is going to exist in Washington until the first quarter of next year, it may handcuff the Fed in their ability to start their tapering program," said Sean Murphy, a Treasuries trader at Societe Generale in New York. Congress raised the debt ceiling until February 7, when conflict around US debt levels may again come to the fore.
Benchmark 10-year notes were last unchanged in price to yield 2.59 percent, after earlier trading as low as 2.54 percent, the lowest since July 24. The yields rose as high as 3 percent on September 5, before the Fed surprised investors by keeping the size of its bond purchase program unchanged. Chicago Fed President Charles Evans and Dallas Fed President Richard Fisher both said on Thursday the Fed would likely defer any decision to trim its bond purchases until at least December.
The release of the highly anticipated payrolls report for September on Tuesday will be the next economic focus, as the government catches up on its missed releases. The report was originally scheduled for release on October 4. Among other data the department rescheduled was the consumer price index for September, which will now be released on October 30, and the producer price index for September, now due on October 29.
The Fed bought $1.56 billion in Treasuries maturing between 2036 and 2043 on Friday as part of its ongoing purchase program. It will buy between $3 billion and $4 billion in notes due 2019 and 2020 on Monday. An influx of cash as investors returned to the market, meanwhile, sent the cost of borrowing against Treasuries overnight in the repurchase agreement market into negative levels, last trading at around minus-0.10 percent, down from 0.16 percent earlier on Friday. Concerns about taking possession of Treasuries bills that were at risk of a US default had disrupted the repo market before Wednesday's agreement to raise the debt ceiling making it more expensive to obtain the loans.
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