Treasuries Firm as Stocks Slip
NEW YORK (Reuters) - Treasuries prices edged higher on Monday, breaking three sessions of losses, as geopolitical concerns and a sell-off in global stocks benefited safe-haven U.S. government debt.
Equities (^SPX - news) slipped in part due to Israel's killing of the spiritual leader of the Hamas Islamic militant group, Sheik Ahmed Yassin, in its highest profile assassination of more than three years of conflict.
The killing stirred fears of reprisals against U.S. targets and boosted the traditional safe-haven investments like bonds, gold and the Swiss franc.
The safety bid could help attract demand for Treasury's auction of $26 billion in new two-years notes, scheduled for Wednesday. There have been worries buying by foreign central banks would taper off now that the Bank of Japan seemed to be intervening less in the currency markets.
"The auction will be a good opportunity to see if the BOJ is still going to back up the truck and load it with securities," said Richard Gilhooly, fixed-income strategist at BNP Paribas.
"We suspect that even if the eventual plan is to slow down or stop intervention, they have done enough recently that they will need to come for some two-year notes," he added.
So far this year, offshore central banks have bought a whopping $100 billion in Treasury and agency debt.
Late Monday morning, the benchmark 10-year note had firmed 5/32 in price, compressing its yield to 3.76 percent from 3.77 percent late on Friday. That remains well below the 4.10 percent level this time last month but up on the eight-month trough of 3.65 percent hit last week.
"With the market having failed to penetrate 3.65 percent, there is room for a backup into the 3.80's, perhaps as far as 3.90 percent," said BNP's Gilhooly.
Five-year notes were up 4/32 in price, taking yields to 2.71 percent from 2.74 percent on Friday. The 30-year bond rose 6/32, leaving its yield at 4.70 percent from 4.71 percent.
The two-year note added 1/32, easing its yield down to 1.50 percent from 1.52 percent.
There were no U.S. economic data due Monday to offer a distraction from security concerns, but two top Federal Reserve (news - web sites) officials are appearing.
Traders hope one or other may expand on last week's policy statement in which the central bank surprised many by taking a slightly less bullish stance on the economy and jobs.
The Fed's caution encouraged the market to further reduce the risk of a tightening this year and sparked a sizable rally in Treasuries.
Both San Francisco President Robert Parry and Chicago Fed President Michael Moskow appear at 1.00 p.m. (1800 GMT) though only the latter is giving a formal speech on the economy.
That last time Moskow spoke in February he said the Fed could afford to be patient on policy but warned that interest rates would have to rise at some point.
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