By Cynthia Lin
U.S. Treasury prices fell Wednesday, setting the market up for
its third consecutive losing session after seeing seven days of
gains in a row.
Investors are unwinding some of the postelection buying, when
concerns about a set of year-end U.S. fiscal deadlines grew after
President Barack Obama won re-election on Nov. 6. The runup in
Treasury prices from Nov. 7 to last Friday was sharp, taking the
10-year yield as low as 1.55%. The market was closed on Nov. 12 for
Veterans Day.
"Lawmakers and Obama have signaled a 'trust me' stand, and
markets have become guardedly optimistic" that a deal will be
reached, said Robert Tipp, chief investment strategist at
Prudential Fixed Income. He says the 1.5% to 1.6% yield range on
10-year notes reflected overbought conditions. "Treasurys were
really set up for a fender bender coming into this week."
Mr. Tipp expects Treasurys to settle into a more stable trading
range around 1.7% on 10-year notes.
Traders say there are still plenty of buyers looking at the
safe-haven market because anxieties are still very much alive about
Washington's ability to avert the fiscal cliff--a set of spending
programs and tax cuts due to expire at the end of the year. Without
an agreement, economists say the cliff could easily wipe out
economic growth in the coming year.
"We expect a steep economic slowdown to occur as a result of the
fiscal cliff and the very real possibility that everyone in America
will be paying higher taxes in 2013," said Tom di Galoma, managing
director at broker-dealer Navigate Advisors. "We are of the view
that employment worsens and retail spending slows
substantially."
In recent trading, Treasurys added to losses seen since the
start of the week. Benchmark 10-year notes recently fell 7/32 in
price to yield 1.680% and 30-year bonds lost 10/32 to yield 2.825%.
Two-year notes shed 1/32 to yield 0.270%. Bond yields rise when
prices fall.
This selling came even as Greece's next bailout package remains
undecided and U.S. consumers were reported feeling less upbeat.
Euro-zone finance ministers and International Monetary Fund
officials concluded a nearly 12-hour meeting still divided on some
details about terms to Greece's funding. The group reconvenes
Monday.
Meanwhile, the Reuters/University of Michigan index on consumer
sentiment fell to 82.7 this month, from an initial read of 84.9.
Separately, a weekly claims reports showed an elevated 410,000 new
applications for jobless benefits, the first time in over a year
that figure held above 400,000 for two straight weeks.
Still ahead, the U.S Treasury plans to sell $13 billion in
10-year inflation-protected notes. Results of the auction are due
at 11:30 a.m. EST.
Nomura Securities' rate strategists expect the sale to fare well
as the inflation-protected version of the 10-year has cheapened
relative to its nominal counterparts. This can be seen in the
10-year breakeven rate, the difference between their two yields.
The rate has fallen to 2.40 percentage points from 2.67 on Sept.
14, the day after the Federal Reserve announced its open-ended
mortgage bond-buying program.
Write to Cynthia Lin at cynthia.lin@dowjones.com