US Treasury debt prices rose for a third consecutive day on Tuesday, as weakness in stocks, concern over European debt issues and smaller-than-expected government borrowing projections fuelled an appetite for lower-risk debt. Expectations of a reduction in debt supply emerged after the Treasury Department on Monday trimmed its borrowing estimates for the current quarter by more than half to $142 billion, citing higher receipts and lower outlays.
The Treasury will announce the size of its May refunding on Wednesday. Analysts predict the refunding size might be reduced by up to $3 billion based on the Treasury's latest borrowing projection. The prior quarterly refunding totalled $72 billion. "The reduced borrowing needs were another marginal positive for Treasuries today," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco.
He added that the problems of debt-stricken European countries also provided a boost. "There are a lot of uncertainties about what is going on and the likelihood that these countries are in a lot of trouble, and we could see some restructuring," he said. Portugal's prime minister on Tuesday afternoon said the country reached a deal on a three-year bailout loan with the European Union and the International Monetary Fund. Treasuries traded steady at higher levels after the Portugal announcement.
"The Treasuries market is looking at the fact that the economy faces many headwinds - high oil prices, demand destruction due to high oil and high food prices, and certainly what is going on across the pond," said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson & Co in Seattle.
Benchmark 10-year Treasuries were trading 7/32 higher in price to yield 3.26 percent, down from 3.28 percent late on Monday. Yields fell to as low as 3.25 percent, a level last seen in mid-March during a safe-haven rally after Japan's devastating earthquake and tsunami. US equities fell on Tuesday with declines in commodity-related shares as oil prices pulled back from recent gains.
Meanwhile, investors were mulling how government efforts to raise the $14.3 trillion US debt ceiling will play out, with speculation that raising the ceiling could prove difficult this time around. Thirty-year Treasury bonds were last up 13/32 with a yield of 4.36 percent, against 4.38 percent on Monday. They were up as much as 16/32 earlier with their yield touching a 1-1/2-month low of 4.35 percent.
The price gains were capped, however, as the market appears overbought in the near term and faces the risk of selling pressure from investors and primary dealers who will clear space for next week's refunding supply, analysts said. Still, the longer positive trend for Treasuries remains intact in the wake of recent tame inflation figures and the Federal Reserve's pledge last week that it will leave interest rates near zero to promote job growth and the overall economy.