US debt prices caught in risk cross-currents

US debt prices caught in risk cross-currents

New York: US Treasury debt prices were mostly flat on Tuesday as talk of enduring dovishness in US monetary policy mixed with signs of renewed risk appetite, creating cross-currents that prevented any dramatic price movements.

Data showing little to no inflation along with slow job growth is making it less likely that monetary tightening will begin soon. This would be good news for Treasury investors, who could rest assured that the value of their Treasury holdings would not be diminished by an unexpected interest rate rise.

Countering the sense of security a dovish Fed stance might offer was the view that market participants’ appetite for risk was returning,

“There’s noise, there’s low volume and there’s lower and lower conviction with each passing day," said George Goncalves, head of US interest rates strategy at Nomura Securities in New York.

Treasury analysts also cited low trading volume as a reason for Treasury prices’ slight movements.

“There’s two-sided risk right now," said Rick Klingman, managing director of Treasury Trading at BNP Paribas in New York. “Inflation numbers are falling. There are some worries about whether the jobs momentum we have is continuing."

However, there was the view that market participants’ appetite for risk was returning, despite continuing turmoil in Europe, which solidified Tuesday with a focus on Spain’s private sector creditworthiness. Even with the fresh source of potential worry in Europe, the euro looked stable, global stocks rose and US stock futures pointed to a higher open.

“The price action tells us people are not willing to sell down the risk assets if they go lower and that’s psychological—it’s important," said John Spinello, Treasury bond strategist at Jefferies & Co. in New York.

The 10-year note was down 3/32 in price to yield 3.27%, compared with 3.26% at Monday’s close.

The 30-year Treasury bond was 3/32 lower in price to yield 4.19%, up from 4.18% late on Monday.