Bonds fall on supply pressure, firm stocks

By Richard Leong

NEW YORK (BestGrowthStock) – U.S. government debt prices fell on Friday as a firm stock market reduced safety bids for bonds and traders clearing space for next week’s $109 billion in coupon-bearing supply.

In the absence of major data, early market losses were limited by bets of further stimulus from the Federal Reserve after the central bank’s policy meeting on Nov 2-3 and uncertainties over any outcome from a Group of 20 nations meeting, analysts said.

Traders also were wary as G20 finance and central bank officials meet on Friday and Saturday in Gyeongju, South Korea, in an attempt to reach an agreement to deal with currency, trade and macroeconomic imbalances.

“There is some positioning ahead of next week’s supply,” said Michael Pond, Treasury strategist with Barclays Capital in New York.

The government’s latest round of debt auctions followed a lukewarm reception to longer-dated supply earlier this month, signaling investors’ reluctance to buy Treasuries at these ultra-low yields.

Treasuries have rallied since late August on expectations of a second round of quantitative easing from the Fed, known as “QE2” with the goal to boost private spending and investments. The yield on benchmark 10-year notes has shed more than 30 basis points during this span to 2.59 percent on Friday.

The market has given back some gains this week in response to Fed officials expressing support for an open-ended, gradual approach to QE2, rather than an aggressive one.

“More seem comfortable with an incremental approach rather than ‘shock and awe,'” Pond said.

St. Louis Fed President James Bullard said on Thursday he would back Fed purchases of Treasuries in $100 billion increments meeting-by-meeting if the Fed decides monetary easing is necessary, but stressed no decision has been made.

With Fed buying more bonds a foregone conclusion among traders, analysts expect solid demand for next week’s supply, including $35 billion in two-year notes, $35 billion in five-year debt and $29 billion in seven-year notes.

Next week’s auctions will kick off on Monday with a $10 billion reopening of five-year Treasury Inflation-Protected Securities.

(Editing by Chizu Nomiyama )

Bonds fall on supply pressure, firm stocks