By Min Zeng
U.S. Treasury bond prices fell on Tuesday for a second
consecutive session, weighed down by new debt supply.
The Federal Reserve will start its two-day policy meeting
Tuesday. The central bank is scheduled to release an interest-rate
statement on Wednesday.
In recent trading, the yield on the benchmark 10-year Treasury
note was 1.952%, compared with 1.923% on Monday, according to
Tradeweb.
When bond prices fall, their yields rise.
A $35 billion sale of five-year Treasury notes is due at 1 p.m.
Tuesday, the second leg of this week's new U.S. government note
auctions.
New corporate bond supply also sent Treasury bond prices lower,
highlighting the U.S. government bond market's important role in
corporate finance. Companies typically sell Treasury bonds to hedge
against unwanted interest-rate swings when they plan a new debt
sale.
Companies are selling new bonds to lock in still-low interest
rates because once the Federal Reserve raises interest rates, the
borrowing costs may be higher. The Oracle Corporation and Amgen
Inc. are among firms that plan to sell new debt on Tuesday.
Tom Tucci, head of Treasury trading in New York at CIBC World
Markets Corp., said he expects "solid demand" for the five-year
auction as higher yields will attract buying interest.
Mr. Tucci said he expects Wednesday's rate statement from the
Fed to show no rush in raising rates. A rise in the Fed's benchmark
interest rate could shrink the value of outstanding bonds.
The 10-year Treasury yield has been trading between 1.8% and 2%
over the past few weeks as concerns have eased that the Fed may
raise interest rates as soon as June.
A number of disappointing releases in jobs growth, retail sales
and manufacturing activities have raised investors' expectations
that the Fed would remain patient. The Fed has held the fed-funds
target rate between zero and 0.25% since December 2008, a key
short-term interest rate affecting money flowing in and out of the
broader economy. The Fed hasn't raised interest rates since
2006.
Bond buyers have benefited from a broad decline in interest
rates over the past year, driven by an uneven pace of global
economic growth and subdued inflation, which has delivered decent
capital gains. The 10-year Treasury yield was 2.173% at the end of
2014, and 3.03% at the end of 2013.
Lower bond yields in Europe and Japan, driven partly by
bond-buying monetary stimulus from the European Central Bank and
the Bank of Japan, have increased the attractiveness of
higher-yielding Treasury debt over the past year.
Analysts have cautioned that at these slim yield levels,
bondholders are vulnerable if sentiment turns sour. Even a moderate
rise in bond yields could eliminate paltry interest payments.
Write to Min Zeng at min.zeng@wsj.com