Treasury prices fall on profit-taking as Fed returns

By Emily Flitter

NEW YORK (BestGrowthStock) – U.S. Treasury debt prices dropped on Tuesday as speculative buyers cashed in following a rally on Monday that pushed the yield on longer maturities to their lowest in nearly a year and a half.

Even with the selling, benchmark 10-year U.S. Treasury note was yielding around 2.60 percent, after seeing a low Monday around 2.57 percent, the lowest since March 2009.

“It was very difficult to sell the market yesterday,” said Marty Mitchell, chief market technician at Stifel Nicolaus in Baltimore. “Once we rolled into Asia the momentum kind of stalled and some Asian accounts were able to take control of the market.”

He added that Tuesday’s activity was being driven by “more speculative longs just kind of taking profits and moving to the sidelines.”

Prices soared and yields plummeted over the past week, as Treasury investors rushed into the market ahead of the Federal Reserve, which will begin reinvesting the proceeds of its mortgage bond holdings on Tuesday.

“It’s more of a sell-the-tape type trade going on now that the Fed is going to start buying,” Mitchell said.

The benchmark 10-year note traded 13/32 lower in price to yield 2.62 percent, up from 2.57 percent at Monday’s close.

Meanwhile, U.S. stock futures pointed to a higher open on Tuesday, a signal that riskier assets were gaining appeal.

Treasuries’ price action was supported by significant trading volume. In a note to clients, RBS Securities Treasury Strategist John Briggs said total broker volume was 133 percent of the 10-day moving average early on Tuesday, according to RBS’ internal calculations.

Briggs reported a bank seller of five-year notes, but also bank-related buying of five-year and 10-year notes.

The five-year note gave up 6/32 in price. Its yield rose to 1.43 percent from 1.39 percent late on Monday.

The market paused briefly ahead of U.S. inflation and housing data on Tuesday morning, but continued its slide after the data’s release. July housing starts rose less than expected, but building permits fell to their lowest level in over a year.

Producer prices, meanwhile, rose for the first time in four months.

The yield on 30-year Treasuries rose to 3.73 percent from 3.72 percent at Monday’s close, while its price slipped 10/32.

William Larkin, a fixed income portfolio manager in Salem, Massachusetts, said some of Tuesday’s selling could also be attributed to growing anxiety among Treasury traders that a wave of mortgage refinancings is coming, now that Treasury yields are so low.

“We’ve seen that refinancing in corporates,” Larkin said.

Refinancing could lead to the selling of longer-dated Treasuries by mortgage servicers trying to rebalance their portfolios after customers repaid their loans more quickly than expected.

Treasury prices fall on profit-taking as Fed returns