US Treasury debt prices gained slightly in light trading volumes before the Christmas holiday with no major economic data on Wednesday, as investors evaluated how many times the Federal Reserve is likely to raise interest rates next year. "We've been trading in a fairly tight range the last couple of days with low volumes. It's very holiday like trading," said Dan Mulholland, head of Treasuries trading at Credit Agricole in New York.
"I think people are trying to assess how the next year is going to start off," Mulholland said. US benchmark 10-year notes rose 7/32 in price to yield 2.54 percent, down from 2.57 percent late on Tuesday. Yields have soared since Donald Trump's victory in the US presidential election last month, as investors bet that he would implement new fiscal stimulus that would boost growth and inflation.
The Fed was also more hawkish than expected at its December meeting last week, indicating that it may raise rates three times next year. That helped to send 10-year note yields to a more than two-year peak and two-year note yields to their highest levels since 2009. Investors are evaluating whether the recent backup in yields makes it a good time to buy bonds, of if yields are likely to rise much further.
"In assessing the risk of where the market is, the risk of disappointment from what people are counting on Trump to do in terms of fiscal stimulus is probably a little bit to the downside rather than overdelivering on the upside," said Mulholland. "With that in mind we do think the market is a little bit oversold at present," Mulholland said.
New supply of two-year, five-year and seven-year notes next week, however, could add pressure to bonds as the auctions will come in a holiday-shortened week when many traders will be on vacation. Data on Thursday, including the third estimate of third-quarter gross domestic product and personal income and spending, will be watched for further indications about the strength of the US economy.
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