US Treasuries prices fell on Thursday as stock market gains and slightly firmer economic data damped demand for US safe-haven debt. Remarks by a Federal Reserve official that he would back incremental purchases of US Treasuries also disappointed some investors.
St. Louis Fed President James Bullard said on Thursday he would back Fed purchases of Treasury securities in $100 billion increments meeting-by-meeting if the Fed decides monetary easing is necessary, but stressed no decision has been made. This more gradualist approach fell short of the "shock and awe" strategy for which some market participants hoped.
Markets believe the Fed will begin another round of asset purchases after its November 2-3 policy meeting, but debate over how aggressive the Fed will be has dominated the bond market. "Bullard sounded less aggressive than what some other members of the (Federal Open Market) committee want," said John Spinello, senior vice president and chief fixed-income analyst at Jefferies & Co in New York.
The Fed cut interest rates to near zero in December 2008 and followed that with purchases of $1.7 trillion of longer-term securities to pull the economy out of recession. Though the downturn officially ended in June 2009, high unemployment and anemic growth have pushed the Fed to consider more monetary easing, which most analysts expect at the Fed's next policy meeting on November 2-3.
The weakest performer along the maturity curve on Thursday was the 30-year Treasury bond, which fell more than a point. "The long bond has been the big loser because the Fed is unlikely to buy anything past 10-years," said Ray Humphrey, co-manager of The Hartford Inflation Plus Fund in Hartford, Connecticut. The 30-year Treasury bond fell 1-5/32, its yield rising to 3.96 percent from easing to 3.90 percent from 3.89 percent on Wednesday.
US Treasuries added to early losses on news of a slightly bigger-than-expected drop in weekly job claims, soothing some worries over further deterioration in the labour market. The US Treasury will sell a combined $99 billion in two-year, five-year and seven-year debt next week, $1 billion less than the amount sold in September. It will also sell $10 billion in 5-year inflation-protected bonds. The 10-year note last traded down 18/32 in price for a yield of 2.55 percent, up 2.48 percent late on Wednesday.