By Min Zeng
U.S. Treasury bonds pulled back Wednesday as investors took some
chips off the table after a rally during a prior session.
Looming new debt sales weigh down bond prices. A $35 billion
sale of five-year notes is due at 1 p.m. EDT Wednesday, followed by
a $29 billion sale of seven-year notes on Thursday.
In recent trading, the yield on the benchmark 10-year Treasury
note was 2.151%, compared with 2.135% on Tuesday, according to
Tradeweb.
Bond prices fall as their yields rise. The yield was 2.173% at
the end of 2014.
Investors piled into haven Treasury bonds Tuesday, sending the
10-year note's yield to a three-week low, driven by renewed worries
over Greece and a selloff in U.S. stocks.
Greece's government and its international creditors have been
stuck in negotiations over terms for funding. The deadline for
cash-strapped Greece to repay loans to the International Monetary
Fund is early next month.
A primary concern is that Greece could default on its debt,
which could raise the risk of the country exiting the eurozone, a
scenario that would cause broader market turmoil.
Contagion from Greece into markets of other weaker economies in
the eurozone has been contained over the past few months. Some
investors still expect a deal to be reached to avoid a default.
Meanwhile, the European Central Bank has been buying bonds since
March to support the economy and investors say this monetary
backdrop would help contain the risk of spillover.
Traders expect the uncertainty to fuel more market swings.
Wednesday, the yield on the 10-year Greek government bond fell
after soaring on Tuesday. The yield was recently down about 0.15
percentage point at 11.762%.
Spain's government bonds also rebounded after Tuesday's selloff.
The 10-year government bond yield in Spain fell by 0.02 percentage
point to 1.857%.
Besides Greece, a main focus for bond investors is when the
Federal Reserve is going to start raising short-term interest rates
and what will be the pace of a new tightening cycle.
A major shift by the central bank into a tightening mode for the
first time since 2006 would send prices of outstanding bonds lower
as higher policy rates make newly sold bonds more attractive to
buy.
Mixed economic releases over the past few weeks have raised the
question over how robustly the U.S. economy is rebounding. Many
investors expect the Fed to wait until late this year to raise
interest rates.
"The economy continues to muddle along," which means the Fed
would not be in a hurry, said Ford O'Neil, a portfolio manager at
Fidelity Investments, which manages $2.1 trillion in global assets.
A slow path of tightening will prevent Treasury bond yields from
rising significantly, he said.
Some traders caution that the Fed may raise rates sooner than
many investors expect, a case that would rattle the bond market and
send yields climbing.
The 10-year Treasury yield touched 2.366% earlier in May amid a
weeks-long rout in government bonds from both sides of the
Atlantic. The selloff reflects investors' concerns that the bonds'
valuations are getting stretched after a strong run-up since the
start of 2014. The 10-year German government bond yield fell to a
record low near zero last month, driven by the ECB's bond-buying
program.
Write to Min Zeng at min.zeng@wsj.com