US Treasuries prices fell on Wednesday as investors took profits from a rally that had pushed yields to the lowest since December and bought riskier assets like stocks and commodities instead. Global stocks rose after five straight days of losses and US crude oil gained more than 2.5 percent to near the $100 per barrel mark, undermining the safe-haven appeal of government debt.
"We saw a pick-up in risk appetite with equities rebounding, and Treasuries are also being hurt by profit-taking from new 2011 (price) highs," said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco. "People thought we were overbought at these levels."
Benchmark 10-year Treasury notes traded 16/32 lower in price, their yields rising to 3.18 percent from 3.12 percent late on Tuesday. Yields dipped to 3.10 percent early in the session, marking the lowest since early December. The rise in oil prices also rekindled some worries about inflation, further undermining Treasuries prices.
Minutes from the Federal Reserve's April policy meeting, released on Wednesday afternoon, showed a few central bank officials saw a rise in inflation risks that suggested tightening of monetary policy might be necessary sooner than currently anticipated. The Fed said in its policy statement last month that while inflation was rising, any price pressure was expected to be transitory. "If inflation risk is indeed transitory, it's clearly rising enough to invite conversations about tightening sooner than they had anticipated," said Todd Schoenberger, managing director at Landcolt Trading Inc, in Lewes, Delaware.
"Now as a result, the recent inflation data we have received may provide the spark for the Fed to seriously consider beginning a tightening policy at the end of 2011," he said. Still, despite Wednesday's Treasuries losses, investors were hardly abandoning the safe-haven asset. Such a trend could support bond prices and send yields still lower, though the market needs further data to confirm a US economic slowdown has taken hold, analysts said.
The outlook for modest second-quarter US growth and talk of a possible restructuring of Greece's debt make an exodus from safe-haven US Treasuries unlikely. Solid demand at a sale of German bonds offered more evidence that the possibility of a Greek debt restructuring was stimulating investors' appetite for safe-haven assets. The cost of insuring Greek government debt against default rose on Wednesday. The longer end of the Treasury curve bore the brunt of Wednesday's selling, with 30-year bonds trading 1-2/32 lower.