U.S. debt yields rise for third straight week

By Ellen Freilich

NEW YORK (Reuters) – Treasuries yields rose on Friday, leaving bonds with a third straight week of losses, the legacy of investors’ willingness to acquire riskier assets for a greater rate of return.

A potentially imminent government shutdown was also on investors’ minds as traders trimmed prices to make room for $66 billion in new three-, 10- and 30-year Treasury notes next week.

The notes and bonds are set to be auctioned even if many government offices are shut and their workers furloughed.

While clouds of uncertainty periodically intervene to send investors back to the shelter of safe-haven government debt, yields have generally headed higher as riskier asset classes have lured investors away from Treasuries, said Robert Tipp, chief investment strategist for Prudential Fixed Income, with $240 billion in assets under management.

Those riskier assets like stocks and commodities have benefited from the Federal Reserve keeping its foot on the monetary accelerator, as well as various forms of fiscal stimulus, including the latest payroll tax holiday, he said.

Benchmark 10-year note yields brushed up against support at 3.59 percent during the session, but eased from that level in late trade, to 3.58 percent.

Yields followed in the path of German bunds, whose yields rose as investors assumed the European Central Bank would continue to raise interest rates after hiking them on Thursday for the first time since 2008, said FTN Financial interest rate strategist Jim Vogel, in Memphis, Tennessee.

“Commentators see yesterday’s quarter point as the first step in a series of tightenings, regardless of what bank officials say,” he said.

Investors also kept an eye on budget negotiations in Washington, where failure to reach an agreement by midnight would shut down the federal government.

Analysts at JPMorgan said foreign investors became sellers of Treasuries when the government shut down in 1995.

The recent backup in yields, however, could help new sales of longer-dated debt next week, which would take place even under a federal government shutdown.

“I don’t anticipate any large problems getting supply done next week,” said Alan De Rose, head trader in government trading and finance at Oppenheimer and Co in New York. “The fact that yields have backed up will help in that regard.”

Two-year notes fell 2/32 in price on Friday to yield 0.82 percent, up from 0.79 percent late on Thursday.

Five-year notes fell 5/32 in price to yield 2.32 percent, up from 2.28 percent on Thursday. They traded as high as 2.42 percent on February 9.

Ten-year notes fell 09/32 in price to yield 3.59 percent, up from 3.55 percent on Thursday. They traded at 3.77 percent on February 9 and as low as 3.15 percent on March 16.

Thirty-year bonds fell 15/32 in price to yield 4.65 percent, up from 4.62 percent on Thursday. They have ranged from 4.71 percent on February 9 to a recent low of 4.32 percent on March 16.

(Additional reporting by Karen Brettell; Editing by Dan Grebler)

U.S. debt yields rise for third straight week