US government debt prices were little changed on Tuesday, as a sense of calm spread before the end of the first quarter and investors moved to the sidelines ahead of Friday's payroll data. There was lingering anxiety over burgeoning public debt and its implications for the long-term credit-worthiness of the United States.
The Treasury Department will share details on its next round of debt sales on Thursday after poorly received supply of $118 billion last week, analysts said. 'Right now, it's at an equilibrium unless there's an outlier with payrolls on Friday," said Lee Olver, managing director of financial strategies with Madison William & Co in Houston. Benchmark 10-year note's price was unchanged at 98 after trading in 13/32 range. Its yield which moves inversely to its price was 3.87 percent, flat on the day.
The 10-year yield was hugging near its 9-month high of 3.93 percent set last Thursday after a weak seven-year note sale. Treasuries have lagged riskier, higher-yield corporate bonds so far this year. Barclays Capital's Treasury total return index has risen 0.92 percent through Monday, less than the 1.96 percent increase on its Credit index.
BANKING ON JOB GROWTH Evidence of sustained job creation will be critical to buttress investor confidence as the government is about to end two key programs to aid the housing market. The Federal Reserve will stop buying mortgage-related securities on Wednesday, followed by the expiration of the $8,000 first-time homebuyer tax credit at the end of April. Analysts polled by Reuters forecast a 190,000 job gain in March, which would be the second monthly increase since the recession began in December 2007.
On Wednesday, traders will receive a snapshot on private hirings from ADP as well as readings on regional factory activity in New York and Chicago. Once the economy churns out jobs again, Fed policy-makers can turn their focus on an orderly exit strategy including stepping away from a near zero interest rate policy.
While the Fed has vowed it will keep rates low, an upbeat jobs report should fan expectations that the Fed will tighten monetary policy sooner rather than later, analysts said. At the moment, investors are taking a wait-and-see approach until Friday's payroll data. Analysts anticipate a flurry of quarter-end portfolio re-balancing on Wednesday.
"People are holding their breath into next week," said Brian Rehling, senior fixed-income strategist at Wells Fargo Advisors in St. Louis, Missouri. The Treasury market will see a shortened trading day on Friday ahead of Easter weekend, and some Wall Street desks were lightly staffed on Tuesday due to the Passover holiday.
Trading was subdued in other areas of the fixed-income market, suggesting a mix of calm and caution among traders. The June 10-year T-note contract closed down 1/32 at 115-29/32, near its technical support of 116. The yield inversion on 10-year dollar interest rate swaps to Treasuries persisted, but the yield discount, which some analysts say signal worries over US credit-worthiness, has shrank from its record wide last week. This measure on long-term US corporate borrowing cost was quoted at a negative spread of 4.50 basis points, unchanged from late Monday.