US Treasury debt prices ended steady on Tuesday after shaking off an upbeat tilt to the day's economic reports, stabilisation in the stock market and positioning for new supplies due later this week. The flight-to-safety bid that lifted bond values on Monday was not as pronounced but values are still higher - and benchmark yields lower - on the week so far.
Sheila Bair, chairman of the Federal Deposit Insurance Corp, said late on Tuesday that more banks are expected to be added to the agency's "problem list," suggesting the year-long credit market crunch is still rolling along. The FDIC's list of troubled banks rose to 117 in the second quarter from 90 in the first quarter.
Yields fell back after minutes from the Federal Open Market Committee's August meeting suggested that the Fed's next rate move is higher - as almost all market participants have expected - but left the timing of such a move up in the air. "The Fed is on hold and the minutes verify that. That's ultimately good news for equities and bad for bonds. We may not see it today, but that's the message they've been sending in the past month or so," said Kurt Karl, chief US economist at Swiss Re in New York.
In late trading, ten-year Treasuries were down 1/32 in price for a yield of 3.78 percent, unchanged from Monday. Two-year notes were down 1/32 lower in price for a yield of 2.34 percent, up from 2.33 percent.
Early pressure on bonds followed a surprising boost in consumer confidence for August. The Conference Board's measure rose to 56.9 from 51.9 in July, outpacing the Wall Street forecast and suggesting a response to slightly lower gasoline prices at the pump.
At the same time, sales of newly-constructed single-family homes for July were lower than expected but up 2.4 percent from a June reading revised to be the lowest since September 1991. Dealers positioned for big supplies on the way, with the Treasury set to auction a record high $32 billion in two-year notes on Wednesday and $22 billion in five-year notes on Thursday.
"Though rich yield levels and the increased supply may temper auction results, ongoing credit angst is keeping a solid bid in Treasuries, especially from many overseas accounts, and that should make for at least decent auctions," said strategists at Action Economics. Short-term rate futures showed little response to the day's events and suggest Fed rate policy will be on hold at least into the first quarter of 2009.