Fears over the impact from Japan's earthquake and nuclear crisis drove US Treasury debt yields to a three-month low on Tuesday, feeding expectations benchmark yields might fall to 3 percent. Reports of rising radioactive leakage from a quake-crippled nuclear power plant near Tokyo, along with worries over political turmoil in the Middle East, overshadowed the Federal Reserve's slightly more upbeat view of the US economy.
Benchmark 10-year notes ended up 11/32 in price after rising 1 point earlier. The yield finished at 3.32 percent, down from 3.36 percent late Monday. It earlier touched 3.21 percent, the lowest intraday level since December 10, according to Tradeweb.
The 30-year bond was the day's best-performing maturity, rising more than a point to yield 4.45 percent. The longest Treasury issue had been the worst performer on Monday on worries that Japanese insurers would sell them to raise cash to meet catastrophe claims.
The initial surge in Treasury prices in cash and futures moderated as fund managers emerged to buy stocks, corporate bonds and other risky assets that were beaten down by the recent selling. Longer-dated maturities encountered technical resistance when their yield fell near their 100-day moving averages.
The statement "does point to the Fed beginning the baby steps required to exit from its current strategy," said Eric Green, head of rates strategy at TD Securities in New York. But it did not significantly changed bets in short-term interest rate futures. Futures still showed traders expect the Fed will leave policy rates in a zero to 0.25 percent target range through the end of the year.
Among Treasury Inflation-Protected Securities, yield discounts versus regular government debt, also known as inflation breakeven rates, bounced back from earlier lows after the Fed acknowledged rising commodity prices are fanning short-term inflation though long-term inflation is in check. The five-year TIPS breakevens ended at 2.16 percent, down 0.3 basis point from Monday, while the 10-year breakeven rate finished at 2.42 percent, down 2.5 basis points but less than a earlier 3.5 basis-point decline.