US Treasury debt prices were steady to modestly higher on Monday before a $40 billion auction of three-year notes, part of this week's record $81 billion November refunding. A combination of short-covering and buying of longer-dated debt pushed up bond prices amid expectations the Federal Reserve will leave interest rates near zero well into 2010, analysts said.
The market's rise was mitigated by a rally on Wall Street in the wake of a pledge by the Group of 20 industrialised nations over the weekend to stick to measures to bolster the global economy. "The market assumes the Fed's punch bowl will be on the table for awhile. It thinks a lot of liquidity will still be around," said Mark Pawlak, market strategist at Keefe Bruyette & Woods in New York.
Analysts predict solid demand for the three-year supply as investors could earn an extra 0.50 percentage point in yield than on two-year notes in exchange for taking slightly more interest rate risk. "Some folks might look at three-years as the optimal part of the front end to own now," said George Goncalves, head of fixed income rates strategy at Cantor Fitzgerald in New York.
In the "when-issued" market, traders expect the pending three-year notes to yield 1.417 percent, higher than the 1.359 percent on the three-year notes actively traded in the open market. Benchmark 10-year Treasury notes were up 3/32 in price at 101-3/32. Their yield, which moves inversely to their price, was 3.49 percent, down 1 basis point from late Friday and 8 basis points below a two-month high set in late October.
Following the three-year auction, the Treasury will sell $25 billion in benchmark 10-year notes on Tuesday and $16 billion in 30-year bonds on Thursday. The US bond market will be closed on Wednesday in observance of Veterans Day. No major data was due on Monday following last week's report from the government that showed the US unemployment rate rose to 10.2 percent in October, the highest level in 26-1/2 years.
The disappointing job figures reinforced the notion the Fed will stick to its super-easy monetary policy in a bid to sustain the economic growth that returned in the third quarter. After last week's policy meeting, Fed officials will speak this week on a range of subjects, ranging from the state of the economy to real estate. On Monday, Fed Governor Daniel Tarullo will speak about financial regulations at an event in New York on Monday evening.