NEW YORK (CNNMoney) -- Treasury prices edged slightly lower and yields continued their recent climb higher, but investors kept an eye on continuing political unrest and global economic news Tuesday.
The market didn't react much to the minutes from the Federal Reserve's latest policy meeting released in the afternoon. Meanwhile the U.S. central bank continued with its systematic debt purchase program through the week.
The Treasury market has bounced around in a pretty narrow range for the last three months, as investors weigh signs of an economic recovery in the United States against a slew of crises across the globe.
Investors tend to dump bonds and buy more profitable assets, such as stocks, when the economy is on the upswing. But uncertainty sends them scurrying for the perceived safety of Uncle Sam's debt.
The benchmark Treasury note yield has been mostly climbing the past few weeks since falling pretty hard after Japan was hit by a barrage of crises. The yield on the benchmark 10-year note edged up to 3.49%, the 30-year yield rose to 4.51%, the 5-year yield ticked up to 2.27% and the 2-year note was at 0.83%. Bond prices and yields move in opposite directions.
Federal Reserve buys bonds: The central bank continued to step into the Treasury market to buy debt throughout the week as part of its $600 billion "quantitative easing" program. The goal of the program, known as QE2, is to spur economic growth by flooding the system with liquidity.
On Tuesday, the Federal Reserve bought $7.6 billion in debt with maturities ranging between May 2018 and February 2021.
The program is set to expire in June, and bond watchers are wondering how the market will deal with the removal of such a large buyer.
The Federal Reserve released the minutes from its March 15 policy meeting late in the day. Traders were looking for any indication of a change to the central bank's bond-buying program.
"There doesn't seem to have been much of a response to the FOMC minutes, largely because those minutes contained what everyone expected them to contain: mixed economic expectations, modest disagreement among FOMC members, and no hint of an early end to QE2," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, in an e-mail to CNNMoney.
Over the rest of the year, Le Bas expects to see interest rates "slowly creep higher" because the market is already very well prepared for the Fed's exit.
Global concerns: Global jitters are expected to remain center stage long term, propping up the safe-haven bid for Uncle Sam's debt.
"Any news coming out of Japan, the Middle East, or Europe will trump any domestic economic data for the foreseeable future," Kevin Giddis, president of fixed income capital markets at Morgan Keegan, wrote in a Tuesday research note.
Meanwhile, the People's Bank of China surprised investors Tuesday by announcing a quarter-percentage-point hike in interest rates. The rise was the fourth increase in six months as China tries to slow its exponential pace of growth and rising inflation rates.
"That its central bank opted to take this measure before the official monthly inflation numbers were actually released (and against the backdrop of the well-know economic challenges facing some of its major trade partners, including Japan) is noteworthy," said Giddis.
The deficit debate: Congress is staring at a a government shutdown later this week if it can't come up with a budget for the rest of the fiscal year. Republicans have been pushing for extensive spending cuts in the face of expanding deficit levels, while Democrats have sought less in the way of reduction in order to maintain a fragile recovery.
In a related matter, Treasury Secretary Tim Geithner warned Monday of the consequences if Congress can't agree on an extension of the debt ceiling. LeBas noted that the fight is scaring investors.
"While the tone of [Geithner's] comments was dire, both we and the markets attribute little risk to such an event actually occurring, though congressional debate will likely employ the debt ceiling as a political tool and perhaps spook the markets as a result," he said.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||4.48%||4.38%|
|15 yr fixed||3.49%||3.42%|
|30 yr refi||4.47%||4.37%|
|15 yr refi||3.48%||3.41%|
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