By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 4 (Reuters) - U.S. Treasury prices fell on
Monday in generally light volume, after trading higher for most
of last week, pressured by upcoming debt supply, as well as
indications that inflation expectations are rising.
U.S. data showing factory orders for November fell 0.6
percent, way below expectations, did push yields a little lower,
but not enough to retrace their earlier rise.
The market this week is bracing for $84 billion in refunding
auctions for February that could cheapen rates going forward,
analysts said. The U.S. Treasury will auction $38 billion in
3-year notes on Tuesday, $27 billion in 10-year notes on
Wednesday, and $19 billion in 30-year bonds on Thursday.
"These auctions are weighing on Treasuries right now," said
York. "There's not going to be demand at 2.65 percent for the
Investors typically sell Treasuries ahead of an auction to
push the yield higher so they can buy them at a lower price.
Nomura Securities in a research note said there has been a
clear upward trend in investment funds activity at the long-end
auctions as the search for yield continues.
Shipley also said there are indications that Monday's rise
in yields was consistent with climbing inflation expectations
that he believed was mostly due to higher oil prices.
One indicator of inflation expectations is the U.S. dollar
five-year forward inflation linked swap, currently at 2.26
percent, the highest in 1-1/2 months. At the beginning of the
year, the U.S. 5-year swap rate was at a more than two-year low.
In mid-morning trading, U.S. 10-year note yields rose to
2.73 percent, up from 2.691 percent late on Friday.
U.S. 30-year bond yields, were also up at 3.071 percent
, from 3.032 percent on Friday.
On the short end of the curve, U.S. 2-year yields climbed as
well to 2.53 percent, compared with Friday's 2.51 percent
Yields did tick lower after a 0.6 percent drop in U.S.
factory orders in November.
"This data - while several months behind us - further
confirms that the slowing the U.S. economy in Q4 was more
pronounced than appreciated in current pricing, or forecasts,"
said Jon Hill, interest rates strategist, at BMO Capital Markets
in New York.
February 4 Monday 11:00AM New York / 1600 GMT
Price Current Net
Yield % Change
Three-month bills 2.35 2.3961 0.000
Six-month bills 2.4 2.4624 -0.003
Two-year note 99-243/256 2.5263 0.016
Three-year note 99-240/256 2.5219 0.025
Five-year note 99-208/256 2.5402 0.032
Seven-year note 100 2.625 0.037
10-year note 103-92/256 2.7307 0.040
30-year bond 105-232/256 3.0707 0.039
DOLLAR SWAP SPREADS
U.S. 2-year dollar swap 14.75 0.50
U.S. 3-year dollar swap 11.00 0.50
U.S. 5-year dollar swap 8.50 0.00
U.S. 10-year dollar swap 2.50 0.00
U.S. 30-year dollar swap -19.50 -0.25
(Reporting by Gertrude Chavez-Dreyfuss; Editing by David