NEW YORK (MarketWatch) — Treasury prices headed for a weekly decline on Friday, as bond traders’ nervousness about the government’s ability to finance its debt overshadowed the Federal Reserve’s presence as a buyer.
Treasurys had traded higher with yields in check earlier in the session, before the Fed bought $7.5 billion in notes maturing in two and three years. It was the second such operation undertaken by the U.S. central bank to boost financial markets and lower borrowing rates.
The amount was larger than some expected and sent “a message to the market to not fight the Fed,” said George Goncalves, chief Treasury and agency-debt strategist at Morgan Stanley.
Two-year note yields (UST2YR:
0.91, +0.01, +0.9%) increased 1 basis points at 0.91%, up from 0.87% last Friday. Bond yields move in the opposite direction of prices.
Yields on benchmark 10-year notes (UST10Y:
2.76, +0.02, +0.7%) rose 3 basis points to 2.77%, up from 2.63% last week reached after the Fed surprised markets by announcing plans to buy Treasurys directly.
Still, 30-year bonds have rallied, with the yield (UST30Y:
3.62, -0.03, -0.8%) little changed at 3.65% Friday. The long bond’s yield is down from 3.72% a week ago as the Fed said it plans to buy securities in that maturity range, after last week saying they would focus purchases on debt maturing in two to 10 years.
The bulk of the securities bought by the Fed on Friday were the most recently sold notes maturing in 2012. Dealers submitted $23.4 billion in debt to be purchased.
On Wednesday, the Fed bought $7.5 billion in debt maturing between 2016 and 2019, also much more than dealers said they had expected. Dealers submitted $21.9 billion that day.
Other maturities are slated to be bought next week, as the Fed embarks on buying $300 billion in Treasury securities. See related story.
Traders also noted some relief after the market absorbed $98 billion in note sales this week.
The Fed’s buyback program “has certainly provided a psychological cap on rates and comfort that we have a window of two weeks of no supply,” said John Spinello, Treasury strategist at Jefferies & Co. The government’s next round of auctions is scheduled to start April 7.
The Treasury received lackluster interest for its 5-year notes this week but solid demand for its 2- and 7-year note sales. The success of the latter quieted concerns, for now, that the U.S. may have trouble finding buyers for all of the debt it needs to sell to finance its economic stimuli and financial-market recovery plans.
Earlier Friday, U.S. debt traded higher as the government said consumer spending rose 0.2% last month, in line with economists’ expectations. See more on consumer spending report.
Also Friday, a report showed consumer sentiment improved in late March, also as analysts predicted.
A survey by the University of Michigan and Reuters rose to 57.3 from 56.3, according to a media report. See story on consumer sentiment.
“The good news is sentiment is stabilizing,” said T.J. Marta, strategist and founder of research firm Marta on the Markets. “The bad news is it appears mired at the worst levels since the final months of the Carter administration in 1980.”
Deborah Levine is a MarketWatch reporter, based in New York.