Treasury prices fall, yield curve steepens

US Treasury prices fell on Thursday as the market was weighed down by government and corporate debt supply, and as investors evaluated the Federal Reserve's statement that it is closer to paring its balance sheet. The Treasury Department sold $28 billion in seven-year notes to fair demand, the final sale of $88 billion in coupon-bearing supply this week. AT&T Corp also came to market with a $22.5 billion seven-part debt issue, which includes $12 billion in debt with maturities between 20- and 41-years, according to IFR.
"The market is unduly being sold off on the mega AT&T deal ... that is weighing on the long-end of the market" Tom di Galoma, a managing director at Seaport Global Holdings in New York. US benchmark 10-year Treasury notes fell 8/32 in price to yield 2.31 percent, up from 2.28 percent on Wednesday. The yield curve between five-year notes and 30-year bonds steepened to 108 basis points, the highest since June 14. Investors also evaluated Fed's Wednesday statement that it expected to start winding down its massive holdings of bonds "relatively soon," despite striking a cautious tone on low inflation.
Many analysts and traders expect the Fed to announce its balance sheet reduction plans at its September meeting. "The Fed is still in play," said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York. Yields on three-month Treasury bills that are due in October declined, after hitting almost 10-year highs earlier this week on concerns that payments on debt due in the month will be delayed if Congress fails to raise the debt ceiling. The Congressional Budget Office said last month that Congress would need to increase the debt limit by early to mid-October to avoid a default. Yields on Treasury bills that mature on October 26 last traded at 1.09 percent, after rising to 1.20 percent on Tuesday, the highest level since October 2008. Data showed that new orders for key US-made capital goods unexpectedly fell in June, but a fifth straight monthly increase in shipments suggested that business spending on equipment supported economic growth in the second quarter. The number of Americans filing for unemployment benefits rebounded from a three-month low last week, but remained below a level consistent with a tightening labor market.