By Dow Jones Business News,
January 03, 2014, 05:16:00 PM EDT
By Min Zeng
U.S. Treasury bonds ended the shortened trading week on a down note as investors cashed out some chips following a
price rally on the first session of 2014.
Trading was thinner than normal due to a snowstorm that barreled through the Northeast, which might have exaggerated
the price swings, analysts and traders said.
"We are seeing some profit taking," said Jason Rogan, managing director of U.S. government bond trading in New York at
Guggenheim Securities LLC. "Because of the weather in the Northeast, liquidity is extremely thin."
In late-afternoon trading, the benchmark 10-year note was 3/32 lower in price, yielding 2.999%, according to Tradeweb.
When bond prices fall, their yields rise.
The 10-year yield, a benchmark to set long-term borrowing costs for consumers, banks and companies in the U.S. and
abroad, ended the week little changed. It remains near the highest level since July 2011, having climbed from 1.61% at
the start of May.
Growing confidence over the U.S. economic outlook has sapped the allure of the world's biggest sovereign-debt market.
Investors also shed bond holdings as the Federal Reserve, a main buyer of Treasurys, will start cutting its monthly bond
purchases this month.
Fed officials have said the pace of winding down its monetary stimulus hinges on the economic outlook, especially the
health of the labor market.
Next week's nonfarm jobs release for December is the bellwether for employment, and analysts said bond yields would be
pushed higher should the report suggest hiring gathers momentum.
Looming new debt supply could also weigh down bond prices. The Treasury Department is scheduled to sell $64 billion in
new bonds in the coming week, which will include $30 billion in three-year notes, $21 billion in 10-year notes and $13
billion in 30-year bonds.
The pace of bond yields' increase has been tempered over the past week as buyers stepped in, deeming the 10-year yield
around 3% attractive.
The yield is more than double the 1.2% U.S. inflation rate in November. It is also more than four times as much as the
yield on the 10-year Japanese government bond, luring Japanese to buy U.S. bonds, traders said.
Many analysts, investors and traders believe bond yields will rise in 2014 at a gradual pace, as there is little
inflation threat. Fed officials have signaled they wouldn't raise short-term interest rates from near zero until at
least 2015, which could also temper bond yields' ascent in the new year, traders and analysts said.
Friday, Fed Chairman Ben Bernanke said in a speech that he was cautiously optimistic over the economy as the recovery
remains incomplete. He added that the economy, with the jobless rate remaining elevated, still needs support from loose
Bond yields could fall this year if U.S. economic growth falters or the U.S. stock market suffers a selloff, analysts
COUPON ISSUE PRICE CHANGE YIELD CHANGE
1/4% 2-year 99 22/32 dn 1/32 0.400% +1.6BP
5/8% 3-Year 99 18/32 dn 3/32 0.779% +3.1BP
1 1/2% 5-year 98 28/32 dn 2/32 1.733% +1.7BP
2 3/8% 7-Year 99 22/32 dn 3/32 2.424% +1.5BP
2 3/4% 10-year 97 28/32 dn 3/32 2.999% +1.4BP
3 3/4% 30-year 96 29/32 dn 4/32 3.927% +0.8BP
2-10-Yr Yield Spread: +259.9 BPS Vs +264.6 BPS
Write to Min Zeng at firstname.lastname@example.org
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