US Treasuries fell on Thursday as investors cleared room for next week's supply, overshadowing tame inflation data that reinforced the view the Federal Reserve can leave short-term interest rates near zero percent. The Treasury Department, as expected, said it will sell $44 billion in two-year notes, $42 billion in five-year debt, and $32 billion in seven-year notes next week.
The amounts matched what it sold in February as the government seeks to finance its huge deficit. Ahead of the sales, investors moved to force some concession in prices. "Supply pressures are significant after the Treasury announced next week's Treasury supply," said John Canavan, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.
Benchmark 10-year Treasury notes traded 8/32 lower in price to yield 3.67 percent, up from 3.64 percent late Wednesday, while two-year notes were down 3/32 to yield 0.96 percent, up 4 basis points from late Wednesday. "It will be hard for the market to digest the supply at these levels," said Larry Milstein, head of government and agency trading with R.W. Pressprich & Co in New York.
The spread between yields on 10-year notes and two-year notes, a gauge of the market's inflation expectations, narrowed to 270 basis points, the tightest level so far this year. The yield gap between the regular 10-year notes and 10-year Treasury Inflation-Protected Securities shrank 1 basis point to about 2.23 percent, signalling investors expect inflation will remain low. Five-year Treasury notes traded 7/32 lower in price to yield 2.42 percent, up from 2.37 percent late Wednesday, while 30-year bonds were 8/32 lower to yield 4.59 percent from 4.57 percent.