US Treasuries prices fell on Tuesday as investors pared their bond holdings on weakness in European bonds and competition from corporate bond supply. Treasury yields held in a tight trading range as investors awaited possible surprises in data on retail sales, consumer prices and housing starts on Wednesday, which might change the timing of the Federal Reserve's trimming its bond-purchase stimulus.
"The market looks fairly valued right now," said Zach Pandl, senior interest rate strategist at Columbia Management in Minneapolis. Investors reckoned the US central bank would dial back its $85 billion monthly purchases of Treasuries and mortgage-backed securities in the first half of 2014 after remarks from Fed Vice Chair Janet Yellen last week to the Senate Banking Committee at a hearing on her nomination to head the Fed.
"Monetary policy is likely to remain highly accommodative long after one of the economic thresholds for the federal funds rate has been crossed," Yellen wrote to Massachusetts Senator Elizabeth Warren in a letter released on Tuesday. Chicago Fed President Charles Evans, who is a voter on the Fed's policy-setting group this year, echoed that view on Tuesday. The Fed bought $3.171 billion in Treasuries that mature from May 2021 to August 2023 as part of this month's planned $45 billion purchases of US government debt.
On the open market, benchmark 10-year Treasury notes were 9/32 lower in price with a yield of 2.710 percent, up 3 basis points from late on Monday. The 30-year bond was down 19/32 in price to yield 3.799 percent, up 3 basis points from Monday. The difference between the rate on 10-year US interest rate swaps and the yield on 10-year Treasury notes briefly contracted to 4.00 basis points earlier, which was the tightest level in 10 months. The 10-year swap spread was last quoted at 5.25 basis points, 0.75 basis point tighter on the day.