Government debt prices fall
Treasury market digests the next Fed purchase and braces for a slew of new debt this week.
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| Click on the chart to see other government debt prices and yields. |
The FixersNEW YORK (CNNMoney.com) -- Treasurys turned lower Monday as investors expressed concern over the flood of debt the government was bringing to market.
The supply concern offset gains earlier in the session as investors sought shelter from declining equities.
"We were up earlier because of weaker stocks. Now it is a supply issue." said Mary Ann Hurley, vice president of fixed income trading at D.A. Davidson in Seattle.
Investors often move assets to the relative safe haven of U.S. debt to avoid the risky equities market in a bad economy. But on Monday, investors were concerned that the government was issuing more bonds than the Federal Reserve was buying up.
Treasury prices also fell on Friday, even after the government reported that unemployment rose to a 25-year high.
Supply concerns: On Monday, the Federal Reserve purchased longer-term debt that matures between Aug. 15, 2019, and Feb. 15, 2026. The Fed plans to purchase a total of $300 billion in Treasurys over the next few months to pump cash into the financial system and boost lending.
More than $11.5 billion was submitted in response to Monday's purchase operation. The Fed bought $2.5 billion of it.
"I thought the $2.5 billion that was accepted was on the low side," said Hurley. "People are tendering in more bonds to sell to the Treasury than what they are accepting."
There has been an increased volume of debt securities coming to market in recent months as the government looks to fund its various economic stimulus plans. A Bureau of Public Debt spokesman said the government auctioned off $454 billion in longer-term debt in the first quarter, the largest quarterly volume on record. The Treasury was set to auction off more debt throughout the week.
"Over a 6-month period, the Treasury is only buying back $300 billion, which is a paltry amount compared to what the Treasury is selling," said Hurley.
The government was set to reopen a 10-year TIPS note Tuesday with a $6 billion offering. A TIPS note is a type of government debt that protects an investor against inflation.
The government also auctioned off $28 billion worth of shorter-term 6-month bills and $30 billion worth of 3-month bills Monday, and was scheduled to auction $25 billion worth of 1-year bills on Tuesday.
The Treasury has also scheduled a $35 billion auction of 3-year notes Wednesday and the reopening of a 9 year, 10-month note auction slated to fetch $18 billion on Thursday, amid other shorter-maturity auctions.
Bond prices: The benchmark 10-year bond dipped 12/32 to 98-15/32, and its yield rose to 2.93% from 2.9% late Friday. Bond prices and yields move in opposite directions.
The 30-year bond fell 29/32 to 95-21/32, and its yield rose to 3.74% from 3.69%.
The 2-year note was trading even from the previous session at 99-27/32 and its yield held at 0.96%.
The 3-month yield fell to 0.19% from 0.21%.
Lending rates: The 3-month Libor rate was 1.16%, unchanged from Friday, according to Bloomberg.com. The overnight Libor rate edged higher to 0.28% from 0.27%.
Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London.
Credit market gauges were unchanged. The TED spread held steady at 0.96 percentage point, even with Friday. The narrower the TED spread, the more willing investors are to take risks.
The Libor-OIS spread held at 0.94 percentage point. The wider the spread, the less cash is available for lending. 
